MONEY LAUNDERING THREAT ASSESSMENT 

W O R K I N G G R O U P

Department of the Treasury

Office of Terrorism and Financial Intelligence (TFI)

Office of Terrorist Financing & Financial Crime (TFFC)

Financial Crimes Enforcement Network (FinCEN)

Office of Intelligence and Analysis (OIA)

Office of Foreign Assets Control (OFAC)

Executive Office for Asset Forfeiture (TEOAF)

Internal Revenue Service (IRS)

Criminal Investigation (CI)

Small Business/Self Employed Division (SB/SE)

Department of Justice

Federal Bureau of Investigation (FBI)

Drug Enforcement Administration (DEA)

Criminal Division

Asset Forfeiture Money Laundering Section (AFMLS)

National Drug Intelligence Center (NDIC)

Organized Crime Drug Enforcement Task Force (OCDETF)

Department of Homeland Security

Immigration and Customs Enforcement (ICE)

Customs and Border Protection (CBP)

Board of Governors of the Federal Reserve System

United States Postal Service (USPS)

United States Postal Inspection Service (USPIS)

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U. S. Money Laundering Threat Assessment

December 2005
TABLE OF CONTENTS

M O N E Y L A U N D E R I N G T H R E A T A S S E S S M E N T

Introduction........................................................................................................................................i

Banking ................................................................................................................................................ 1

Money Services Businesses....................................................................................................... 7

 Money Transmitters............................................................................................................ 11

 Check Cashers ...................................................................................................................... 14

 Currency Exchangers ......................................................................................................... 15

 Money Orders........................................................................................................................ 17

 Stored Value Cards ............................................................................................................. 20

Online Payment Systems ........................................................................................................... 25

Informal Value Transfer Systems.......................................................................................... 29

Bulk Cash Smuggling................................................................................................................... 33

Trade-Based Money Laundering ........................................................................................... 41

Insurance Companies .................................................................................................................. 45

Shell Companies And Trusts.................................................................................................... 47

Casinos................................................................................................................................................ 51

Appendices

 (A) NDIC Analysis................................................................................................................. 57

 (B) FinCEN Analysis ............................................................................................................. 59

 (C) Bank Secrecy Act Reports.......................................................................................... 69

(D) Status of BSA Regulations for Financial Institutions...................................... 71

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INTRODUCTION

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In

The 2005 Money Laundering Threat Assessment 

(MLTA) is the first government-wide analysis of 

money laundering in the United States. The report is 

the product of an interagency working group composed 

of experts from the spectrum of U.S. Government agencies, bureaus, and offices that study and combat money 

laundering. The purpose of the MLTA is to help policy 

makers, regulators, and the law enforcement community 

better understand the landscape of money laundering in 

the United States and to support strategic planning efforts to combat money laundering. 

The working group synthesized law enforcement statistics and observations, regulatory data (such as Bank 

Secrecy Act filings), private sector studies, and public 

information to assess the vulnerabilities that allow criminals to launder money through particular money laundering methods or conduits. 

The MLTA offers a detailed analysis of thirteen money 

laundering methods, ranging from well-established techniques for integrating dirty money into the financial system to modern innovations that exploit global payment 

networks as well as the Internet. Each chapter focuses 

on a specific money laundering method and provides a 

brief overview of the methodology, an assessment of 

vulnerabilities – including geographic or other noted 

concentrations – and the regulatory/public policy backdrop. 

While not exhaustive, the assessment consolidates a tremendous amount of information and insight contributed 

by the various participating agencies as to the major 

methods of money laundering that they confront. The 

overall picture is both sobering and promising. The 

volume of dirty money circulating through the United 

States is undeniably vast and criminals are enjoying 

new advantages with globalization and the advent of 

new financial services such as stored value cards and 

online payment systems. At the same time, there has 

been considerable progress. The approach of U.S. law 

enforcement and regulatory agencies has undergone a 

sea change over the past decade, such that money laundering is now treated as an independent and primary focus across all relevant agencies. With this change in 

approach and focus have come marked improvements 

in both systemic and applied anti-money laundering 

(AML) efforts. Most encouraging are interagency initiatives and task forces that, when properly coordinated, 

bring the talents, expertise, and resources of multiple 

agencies to bear on a problem to great effect. With so 

many agencies looking at distinct but related aspects of 

this issue, it is critical that information be shared freely 

and studied jointly. Highlighted below are some notable 

examples of recent U.S. agency advances in organization, analysis, and execution in the fight against money 

laundering:

U.S. Immigration and Customs Enforcement (ICE), has 

introduced many new initiatives aimed at analyzing and 

combating the movement of illicit funds by bulk cash 

smuggling, trade-based money laundering, courier hubs, 

money services businesses (MSBs), charities, and alternative remittance systems. These initiatives include:

Operation Cornerstone, founded in 2003 – a private 

industry partnership and aggressive outreach 

program;

A Trade Transparency Unit (TTU) aimed at 

identifying anomalies related to cross-border trade 

indicative of money laundering; 

A multi-agency approach (in partnership with 

Internal Revenue Service – Criminal Investigation 

(IRS-CI), FinCEN, and the Federal Bureau of 

Investigation (FBI)) to target unlicensed MSBs; 

and

A Foreign Political Corruption Task Force in 

Miami to address foreign public corruption and 

related money laundering. 

With respect to bulk cash smuggling in particular, ICE 

is: 

Working with Customs and Border Protection (CBP) 

to share training and expertise with the Mexican 

government as to how to execute successful bulk 

cash smuggling interdiction operations;

Providing training in bulk cash smuggling 

interdiction to 28 developing countries in the 

Middle East, South America, Africa, and Asia, in 

concert with CBP and the State Department; and

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INTRODUCTION

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Conducting training in bulk cash smuggling 

interdiction, funded by the Executive Office for 

Organized Crime Drug Enforcement Task Forces 

(OCDETF), in seven major cities throughout the 

United States, attended by federal, state and local 

law enforcement.

The FBI is working to develop advanced technologies 

to exploit Suspicious Activity Reports (SARs) and other 

Bank Secrecy Act (BSA) data from FinCEN by using 

computer software to visualize financial patterns, link 

distinct criminal activities, and display the activity in 

link analysis charts. The FBI is also implementing a 

next-generation electronic file management system that 

will help manage investigative, administrative, and intelligence needs while also improving ways to encourage information sharing with other agencies. 

The Administrator of the Drug Enforcement Administration (DEA) issued a directive in 2003 restoring DEA’s 

primary focus to the financial aspects of drug investigations. Currently, every DEA investigation includes a financial component. DEA also undertook the following 

steps to promote this focus: 

Established an Office of Financial Operations;

Established specialized money laundering groups 

in every DEA Field Division, and increased Special 

Agent resources devoted to money laundering 

invstigations in key foreign offices;

Created and presented specialized money 

laundering training to DEA agents and analysts;

Established a “Bulk Currency Initiative” to 

coordinate all U.S. highway money seizures for 

the purpose of developing the evidence necessary 

to identify, disrupt, and dismantle large-scale 

narcotics trafficking organizations; and

Initiated a global money flow study, through 

its position as chair of the International Drug 

Enforcement Conference, to identify and target 

drug proceeds flowing from countries of drug 

abuse to countries of drug supply. 

The IRS, as part of its core tax administration mission, 

addresses both the criminal and civil aspects of money 

laundering. IRS-CI special agents “follow the money” 

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within various inter-agency task forces and centers. 

IRS-CI also has 41 active Suspicious Activity Report 

Review Teams (SAR-RT) reviewing and analyzing 

SAR data for case development and support throughout 

the country. Recently-acquired “data mining” software 

is improving the ability of IRS-CI’s investigators and 

analysts to make connections and identify patterns in the 

SAR data. 

On the civil side, the IRS established a new organization 

within its Small Business/Self-employed (SB/SE) Division, the Office of Fraud/BSA, which has end-to-end 

accountability for BSA oversight of certain non-bank 

financial institutions. There are over 300 examiners 

and managers who are fully trained and dedicated fulltime to the BSA program. The IRS has also completed 

a model Federal/State Memorandum of Understanding 

which provides both IRS and the participating state the 

opportunity to leverage resources for BSA examinations, outreach, and training. 

Treasury’s Office of Terrorist Financing and Financial 

Crime (TFFC), a part of the Office of Terrorism and 

Financial Intelligence, is working to develop and drive 

anti-money laundering policy and initiatives at home 

and abroad. A primary initiative of this office is to lead 

the interagency development of the National Money 

Laundering Strategy. In crafting this and other strategies, TFFC works with the law enforcement, regulatory, 

and intelligence communities, in addition to the private 

sector and overseas counterparts, to identify and address 

systemic vulnerabilities. In addition, TFFC, along with 

inter-agency counterparts, has been a driving force behind the worldwide propagation of strong anti-money 

laundering standards via the Financial Action Task Force 

(FATF), the preeminent international body on money 

laundering issues. Over the past two years, scores of 

new countries – from North Africa to the Persian Gulf 

region to Eurasia – have joined FATF-style regional 

bodies, such that over 150 nations have now committed 

themselves to adopting FATF’s standards and to being 

evaluated against them.

The BSA, administered by the Treasury Department’s 

Financial Crimes Enforcement Network (FinCEN), is 

the cornerstone of the U.S. Government’s AML framework and was recently expanded in scope and depth. 

Today, businesses under the BSA umbrella include casinos, jewelers, MSBs (such as check cashers and money 
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transmitters), securities dealers, and others. 

FinCEN is itself undergoing a broad transformation. 

The bureau is changing the way it analyzes information, 

moving away from functioning simply as a clearinghouse, and moving towards higher-level research and 

analysis, which will utilize all sources of information to 

analyze the cutting-edge systems of money laundering 

and illicit finance. FinCEN has also signed memoranda 

of understanding with the federal regulatory agencies 

that have received delegated authority from FinCEN to 

examine financial institutions for compliance with the 

BSA. The goal is better coordination and communication leading to effective implementation and enforcement 

of the BSA, which ultimately should help to achieve a 

sustained and successful attack on money laundering in 

the United States.

The U.S. Postal Inspection Service (USPIS) enjoys the 

advantage of having more than 100,000 postal clerks 

and managers on the alert for possible suspicious activity. These employees file over 500 SARs per week to 

the U.S. Postal Service (USPS) BSA Compliance Office. USPIS recently established an Intelligence Analysis Unit (IAU) at its headquarters office to ensure that 

these reports as well as back room analysis are being 

utilized effectively. The IAU methodically analyzes the 

USPS BSA database, searching for clues that might indicate major money laundering operations and possible 

terrorist financing schemes. The IAU both responds to 

investigative inquiries from field inspectors and proactively initiates investigative leads for the field. 

The Department of Justice’s Asset Forfeiture and Money 

Laundering Section (AFMLS) reports that the USA PATRIOT Act provided a number of new tools to identify 

and track criminal proceeds. Section 319(a) has been of 

particular importance, allowing the government to capture criminal assets held abroad if the criminal proceeds 

are deposited in a foreign bank that maintains a correspondent account in the United States. The Civil Asset 

Reform Act of 2000 is another important tool assisting 

federal law enforcement in making asset forfeitures. The 

law makes possible both the criminal and civil forfeiture of the proceeds of all specified unlawful activities. 

Many U.S. Attorney’s Offices will not approve an indictment for presentation to the grand jury until a forfeiture 

specialist has reviewed it for possible criminal forfeiture 

and/or the filing of a parallel civil forfeiture complaint. 

 

In 2005, the Departments of Justice, Homeland 

Security,1 and Treasury established a multi-agency drug 

and financial intelligence fusion center through the OCDETF program. Leads resulting from the efforts of the 

Fusion Center will support the initiation and development of coordinated international, national, and regional 

investigations. AFMLS, in partnership with OCDETF, 

has conducted Financial Investigation Training Seminars in every OCDETF region in the country during the 

past two years.

The National Drug Intelligence Center (NDIC), whose 

mission is to develop strategic domestic drug intelligence, created a Money Laundering Unit in January 

2005 to provide a multi-source fusion capability for 

money laundering-related information. The mission of 

this unit is to identify strategic money laundering trends 

and patterns for national policy makers. 

The Treasury Executive Office for Asset Forfeiture 

(TEOAF) administers the Treasury Forfeiture Fund, and 

has implemented a strategic focus on promoting “high 

impact cases,” or cases that generate $100,000 or more 

in forfeited value. In FY 2004, the Fund received more 

than $335 million in revenue, 84% of which was derived 

from “high impact cases.” TEOAF then uses this money 

to fund law enforcement training, special programs, and 

criminal investigations. 

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Legal, structural, and strategic advances improve the 

ability of U.S. agencies to track and combat money launderers. That said, money laundering remains a massive 

and evolving challenge that will require clear, strategic 

thinking. Measuring the problem is an essential first 

step. Studies have traditionally looked to that portion 

of illicit activity that is apprehended by authorities as 

an indicator of the types of money laundering going 

on and trends within the field. Such indicators include 

seized or forfeited assets, indictments, and BSA filings 

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The United States Coast Guard.
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by financial institutions, such as SARs. Each of these 

is admittedly imperfect, but could offer much useful information. 

Unfortunately, however, the data are not as developed 

as they should be and not collected in a systematic way 

across the U.S. government. It is currently not possible, 

for example, to quantify with accuracy the total amount 

of money laundering activity being apprehended by

federal law enforcement agencies, let alone state and 

local law enforcement. Individual tracking systems developed and tailored to meet particular agency priorities and needs have yielded often incompatible systems. 

Problems include data fields that are collected by some 

but not all agencies, disparities in definitions, and redundancies wherein two or more agencies log the same 

seizure or arrest because the case was handled through 

a joint task force. Agencies may not even share common definitions of what constitutes “money laundering 

proceeds,” or what nexus to the United States warrants 

defining illicit activity as “United States” money laundering. 

Appendices to this assessment make the most of the existing data to offer a rough quantitative analysis of money laundering concentrations. Going forward, though, 

more data needs to be collected in a more consistent way 

across agencies. Of particular importance is information that would track, with respect to every money laundering seizure, the following: (1) the predicate crime, 

(2) the money laundering method/s utilized, and (3) the 

source and suspected destination of the proceeds. Accurate, comprehensive data is vitally important if we are 

to assess whether we are collectively gaining ground, 

keeping pace, or falling behind criminal money launderers in each of the various methodologies that they employ. 
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Chapter 

Ba

Banks and other depository financial institutions 

in the United States are unique in that they alone 

are allowed to engage in the business of receiving deposits and providing direct access to those deposits 

through the payments system. The payments system encompasses paper checks and various electronic payment 

networks facilitating credit and debit cards and bank-tobank transfers. The unique role banks play makes them 

the first line of defense against money laundering.

Depository financial institutions (DFIs), which include 

commercial banks, savings and loan associations (also 

called thrifts), and credit unions form the financial backbone of the United States.2

 Although Money Service 

Businesses (MSBs) may offer an alternative to banks, 

MSBs must themselves engage the services of a DFI to 

hold deposits, clear checks, and settle transactions. Thus 

in almost every money laundering typology, a bank is 

employed domestically or abroad to hold or move funds. 

The stage at which funds are introduced into the banking system is a critical one. A report from the New York 

Clearing House, which operates bank payment systems, 

acknowledges: “Once a person is able to inject funds 

into the payment system that are a product of a criminal 

act or are intended to finance a criminal act, it is highly 

difficult, and in many cases impossible, to identify those 

funds as they move from bank to bank.”3 

The BSA requires banks to establish and maintain effective anti-money laundering (AML) programs, implement customer identification programs, and maintain 

transaction records. Banks also are obligated to report 

cash transactions exceeding $10,000 as well as transactions that appear suspicious.

Banks are ubiquitous in the United States but industry 

consolidation, due to deregulation and competitive pressures, is reducing the number of distinct DFIs. At year 

end in 2004 there were, for the first time since the FDIC 

was created in 1934, fewer than 9,000 federally-insured 

commercial banks and savings institutions in the United 

States, not including credit unions.4 

 

Another significant development in the banking sector is 

the ongoing decline in the use of paper checks. By 2003, 

for the first time, most payments not made by cash were 

made electronically, though it takes all forms of electronic payments combined to rival the number of checks 

paid. Previously, paper checks ranked right behind cash 

as the most favored form of payment. By the end of 

the decade, the Federal Reserve predicts credit and debit 

card payments will each surpass check volume.5

 

The shift from paper to electronic payments is changing 

the economics of the payments business putting emphasis on lowering costs. In response, banks are increasingly using the Internet as a means for customers to open 

or access accounts.6 Moving away from face-to-face 

customer interaction, particularly for account openings, 

challenges the traditional process of customer due diligence. Similarly, the steady influx of immigrants without U.S. Government-issued identification is requiring 

banks to explore new ways to verify the identity of their 

customers. 

Despite the rapid growth in electronic payments and the 

accelerating pace of change in financial services, domestic payment networks in countries around the world 

do not connect with one another. A bank in the United 

States cannot transmit a payment directly to a foreign 

bank unless the U.S. bank has a presence in the foreign 

country. That presence can be either an overseas branch 

of the U.S. bank or a correspondent account. A bank 

chartered in a foreign country faces the same option if it 

wants to provide services in the United States for its customers. Instead of bearing the costs of licensing, staffing, and operating its own offices in the United States, 

2The term “bank” will be used generically in this chapter to refer to all forms of DFI.

3 Guidelines for Counter Money Laundering Policies and Procedures in Correspondent Banking, sponsored by the New York Clearing House 

Association, LLC, March 2002.

4 FDIC Quarterly Banking Profile, Fourth Quarter 2004. Accessed at: http://www2.fdic.gov/qbp/2004dec/qbp.pdf. 5The 2004 Federal Reserve Payments Study, December 15, 2004.

6 Saranow, Jennifer, Banks Speed Process for Opening Online Accounts, Wall Street Journal, Feb. 3, 2005.
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the bank can open a correspondent account with a U.S. 

bank.7 According to a Congressional report on money 

laundering and correspondent banking: “Today, banks 

establish multiple correspondent relationships throughout the world in order to engage in international financial 

transactions for themselves and their clients in places 

where they do not have a physical presence. Many of 

the largest international banks serve as correspondents 

for thousands of other banks.”8 

Vulnerabilities

Banks, although obligated to implement a customer 

identification program, must contend with businesses 

and consumers who may attempt to disguise their true 

identity and source of income. Cash-intensive businesses, for example, may inflate how much legitimate 

cash comes in each day to disguise the deposit of cash 

from illegal drug sales or other criminal activity. Banks 

attempt to spot these deceptions at the point accounts 

are opened or to recognize suspicious deposit and withdrawal activity as it occurs.

As banks venture into opening accounts online and providing online account access, it becomes increasingly difficult to verify customer identification. The move away 

from face-to-face account opening and account access 

creates opportunities for fraud and identity theft. Unauthorized access to checking accounts is the fastest growing form of identity theft. In October 2005, the Federal 

Financial Institutions Examination Council (FFIEC), a 

body composed of the DFI federal regulatory agencies, 

issued industry guidance titled: Authentication in an 

Internet Banking Environment. The document advises 

financial institutions offering Internet-based products 

and services to use customer authentication techniques 

“appropriate to those products and services.”9 According to HSBC, banks may be forced to restrict online access only to customers with appropriate hardware and/or 

software.10

In addition to the difficulty financial institutions face 

identifying their customers online, the growing adoption 

of electronic payment systems is producing new opportunities for electronic fraud.11 New forms of electronic 

funds transfers, including Internet- and telephone-initiated payments, and the conversion at the point-of-sale of 

paper checks to electronic debits, all use the automated 

clearinghouse (ACH), an electronic payment network 

designed for bank-to-bank transactions rather than for 

direct access by consumers and businesses.12 More than 

12 billion ACH payments were made in 2004, a 20 percent increase over 2003.13 Consumers initiated almost 

one billion ACH payments via the Internet, worth more 

than $300 billion last year, which was a 40.4 percent 

increase over 2003.14 

A major vulnerability the BSA attempts to address is 

foreigners sending and receiving payments through 

U.S. banks using “correspondent,” “payable through,” 

or “nested” accounts, which, without adequate due diligence, can shield the payer’s true identity. The farther 

removed an individual or entity is from the bank, the 

more difficult it is to verify the identity of the customer. 

Correspondent accounts and “payable through” accounts streamline cross-border transactions but create 

opportunities to use a U.S. or foreign bank without the 

bank knowing the true payment originator. A “payable 

through” account at a U.S. bank would, for example, 

involve a foreign bank holding a checking account at 

the U.S. institution. The foreign bank could then issue 

checks to its customers allowing them to write checks 

on the U.S. account. A foreign bank may have several hundred customers writing checks on one “payable 

through” account, and all are considered signatories on 

the account at the U.S. bank.

7

 Minority Staff of the Permanent Subcommittee on Investigations Report on Correspondent Banking: A Gateway for Money Laundering, 

February 5, 2001.

8 Ibid. 9 FFIEC, Authentication in an Internet Banking Environment. Accessed at: http://www.ffiec.gov/pdf/authentication_guidance.pdf. 10 Goodwin, Bill, HSBC Warns Of Online Banking Bans, Computerweekly.com, April 12, 2005. Accessed at: http://www.computerweekly.com/

articles/article.asp?liArticleID=137822&liArticleTypeID=1&liCategoryID=6&liChannelID=22&liFlavourID=1&sSearch=&nPage=1#. 11 Putting an End to Account-Hijacking Identity Theft, FDIC, Division of Supervision and Consumer Protection Technology Supervision 

Branch, December 14, 2004.

12 The ACH was designed for low value recurring transactions, specifically direct deposit of payroll and monthly consumer bill payments that 

remain the same each month.

13 The National Automated Clearing House Association. Accessed at: http://www.nacha.org/. 14 Ibid.
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A variation on the “payable through” account is “nesting,” in which foreign banks open correspondent accounts at U.S. banks but then solicit other foreign banks 

to use the account. Nested accounts provide indirect 

access to the U.S. financial system by allowing a foreign bank that does not have a direct correspondent relationship with a U.S. financial institution to use another 

bank’s U.S. correspondent account. These second-tier 

foreign banks then solicit individuals as customers. This 

results in an exponential increase in the number of individuals having signatory authority over a single account 

at a U.S. banking entity. 

Of particular concern are foreign “shell banks” – foreign 

banks that do not maintain a physical presence in any 

country – that seek to access the U.S. financial system via

correspondent accounts. 

Cash Letter/Pouch Activity15

As cross border wire transfers come under increased 

scrutiny and regulation, criminals have found paper 

checks, money orders, and cashier’s checks to be an effective method to move money internationally. These 

more traditional payment instruments take a longer time 

to clear when traveling outside the United States but are 

perceived by money launderers as being subject to less 

scrutiny. 

Money launderers can transfer large dollar amounts by 

writing a number of checks or buying a number of money orders at various U.S. locations, with each payment 

below the reporting threshold. The dollar-denominated payments are mailed or transported to accomplices 

overseas who deposit the checks and other payments 

in foreign bank accounts. Because these are dollardenominated payments, the foreign banks that receive 

them send them back to the United States for deposit 

in their U.S. correspondent accounts. The checks and 

money orders are bundled up at the foreign banks and 

sent with a deposit slip (referred to in the industry as a 

“cash letter”) with the details of each check and money 

order. The U.S. correspondent bank credits the foreign 

bank’s U.S. account and routes the individual payment 

instruments to the appropriate paying banks and other 

institutions. 

Some banks handle as many as five to seven million 

checks a day delivered by shipping companies in pouches and overnight bags. Processing is done as efficiently 

as possible, making it very difficult to aggregate related 

payments or scrutinize individual payments for evidence 

of money laundering. 

Private Banking 

Private banking is defined as “the personal or discreet 

offering of a wide variety of financial services and products to the affluent market. These operations typically 

offer all-inclusive personalized services. Individuals, 

commercial businesses, law firms, investment advisors, 

trusts, and personal investment companies may open private banking accounts.”16 Private banking relationships 

have proved problematic. In contrast to “nesting” or 

“payable through” accounts, money laundering through 

private banking relationships more often involves a 

gross failure of due diligence, if not bank complicity. 

 

Riggs National Bank was fined over forty million dollars 

as a consequence of serious deficiencies in its AML program, including in its private banking practice.17 Riggs 

opened multiple private banking accounts for former 

Chilean dictator Augusto Pinochet, among other politically exposed persons, accepting millions of dollars in 

deposits under various corporate and individual account 

names and paying little or no attention to suspicious activity in these accounts.18 Other major banks have also 

15 This section is drawn from the testimony of John F. Moynihan and Larry C. Johnson, partners, BERG Associates, LLC, before the House 

Committee on Financial Services, Subcommittee on Oversight and Investigations, March 11, 2003. 16Money Laundering: A Banker’s Guide to Avoiding Problems, Office of the Comptroller of the Currency, Dec, 2002. Accessed at: 

http://www.occ.treas.gov/moneylaundering2002.pdf. 17 See, e.g., In the Matter of Riggs Bank, N.A., No. 2004-01, Assessment of Civil Monetary Penalty (May 13, 2004); “Money Laundering and 

Foreign Corruption: Enforcement and Effectiveness of the Patriot Act,” Supplemental Staff Report on U.S. Accounts Used by Augusto 

Pinochet, U.S. Senate Permanent Subcommittee on Investigations, March 16, 2005.

18 Guidance on applying scrutiny to situations of this type has been available for some time. See Guidance on Enhanced Scrutiny for 

Transactions that May Involve the Proceeds of Foreign Corruption (January 2001). Accessed at: http://www.federalreserve.gov/boarddocs/

SRLETTERS/2001/sr0103a1.pdf.
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come under criticism for the laxity of their private banking AML policies and procedures.19 

In 2003, ICE established a Politically Exposed Person 

(PEP) Task Force in Miami to address the vulnerability 

of relationships between private banks and corrupt foreign officials. The PEP Task Force works with ICE field 

offices and foreign governments in the identification of 

public corruption-related proceeds laundered through 

U.S. financial institutions. Increasingly, Central American, South American, and Caribbean governments are 

seeking the assistance of the United States in developing 

evidence against, and locating the assets of, corrupt government officials and prominent citizens involved in the 

theft or embezzlement of public and private funds. ICE 

agents are currently investigating several cases that involve illicit funds channeled into the United States from 

Caribbean, Central American, South American, and Pacific Rim countries that were used to purchase assets domestically and abroad.

Regulation and Public Policy

Under the BSA, all financial institutions must develop, 

administer, and maintain a program that ensures compliance with the law’s reporting and recordkeeping requirements. The compliance program is tailored to a bank’s 

business operations and risks. By law, the program must 

include the following four components: 

A system of internal controls to assure ongoing 

BSA compliance; 

Independent testing of the DFI’s compliance; 

The designation of an individual responsible 

for coordinating and monitoring day-to-day 

compliance; and 

Training for appropriate personnel.20 

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Banks and certain other DFIs must implement a written customer identification program appropriate for their 

size, location, and type of business.21 The program 

must include account-opening procedures that specify 

the identifying information that will be obtained from 

each customer, and it must include reasonable and practical risk-based procedures for verifying the customer’s 

identity. The procedures are supposed to enable a bank 

to form a reasonable belief that it knows the true identity 

of each customer. 

DFIs are required to file SARs, reporting any instances 

of known or suspected illegal or suspicious activity.22

To ensure that it will be able to identify suspicious activity, a DFI should have in place a customer due diligence 

(CDD) program under which the organization (1) assesses the risks associated with a customer account or transaction, and (2) gathers sufficient information to evaluate 

whether a particular transaction warrants the filing of a 

SAR. In addition, appropriate systems and controls are 

to be in place to monitor and identify suspicious or unusual activity. CDD protocols vary depending on the 

activities associated with different types and volumes of 

banking transactions and their risk. (See Tables 1 and 2 

for SAR data analysis). 

The number of SARs filed by depository institutions from 

1996 through 2003 increased on average by more than 

25% annually.23 The total number of suspicious activity reports filed in 2005 is projected to surpass 700,000. 

FinCEN indicates that some of this increase is warranted, while some may be attributed to “defensive filing” 

by financial institutions, in which SARs are filed on nonsuspicious transactions out of concern about regulatory 

and criminal scrutiny. Such defensive filing dilutes the 

value of the information in the BSA database.24 

 

Examination authority over banks and other depository 

institutions for BSA compliance has been delegated by 

19Testimony of Herbert A. Biern, Senior Associate Director, Division of Banking Supervision and Regulation, Federal Reserve Board, before 

the Committee on International Relations, U.S. House of Representatives November 17, 2004.

20 See 31 U.S.C. § 5318(h)(1). 21 See 31 U.S.C. § 5318(l) and 31 C.F.R. § 103.121 (for banks, savings associations, credit unions, and certain non-federally regulated banks). 22 See 31 U.S.C. § 5318(g). 23 FinCEN, By The Numbers, Issue 3, Dec. 2004.

24 Statement of William Fox, Director Financial Crime Enforcement Network, United States Department of the Treasury, 

before the United States House of Representatives Committee on Financial Services Subcommittee on Oversight and Investigations, May 26, 

2005.
5

BANKING CHAPTER 1

B A N K I N G — C H A P T E R 1

FinCEN to the industry’s five functional regulators.25 

The federal bank regulators include a review of BSA 

compliance in their periodic examinations. In the second half of 2004, the federal banking regulators completed 44 public enforcement actions involving BSA violations. Among the problems most often cited was the 

lack of independent testing to validate BSA compliance. 

In about 60% of the BSA cases that were closed in the 

second half, a bank was ordered to arrange for testing or 

was cited for failure to do so.26 Several banks in recent 

years have faced severe criminal and civil penalties as a 

consequence of BSA lapses.

In June 2005, the FFIEC released a joint BSA/AML examination manual. This manual will assist examiners 

in evaluating banks’ BSA/AML compliance programs, 

regardless of the size or business lines of the bank. This 

manual should provide for enhanced consistency in the 

interpretation of BSA and AML requirements across the 

various agencies. 

With respect to shell banks, Section 313 of the USA 

PATRIOT Act and its implementing regulations prohibit covered U.S. banks and broker-dealers from establishing, maintaining, administering, or managing a 

correspondent account for a foreign shell bank.27 In 

addition, U.S. banks and broker-dealers must take reasonable measures to ensure that any correspondent account that they establish, maintain, administer, or manage for a foreign bank is not being used by the foreign 

bank to provide banking services indirectly to a foreign 

shell bank.28

Section 312 of the USA PATRIOT Act provides, among 

other things, for enhanced due diligence with respect to 

certain correspondent accounts held on behalf of banks 

operating under an offshore license and also mandates 

enhanced scrutiny for private banking accounts maintained for senior foreign political figures.

25The five functional regulators for the banking industry include the Board of Governors of the Federal Reserve System (Federal Reserve), the 

Federal Deposit Insurance Corporation, the National Credit Union Association, the Office of the Comptroller of the Currency, and the Office of 

Thrift Supervision. State-chartered private banks, trust companies, and credit unions without federal insurance have no federal functional

regulator, and come under the purview of the IRS SB/SE Division for purposes of BSA examination. 

26Vartanian, Thomas P., Focus on BSA, Laundering Continued; Bank Secrecy Act, American Banker, April 1, 2005. 

27 31 U.S.C. §5318(j)(1); 31 CFR 103.177(a)(1). 28 31 U.S.C. §5318(j)(2); 31 CFR 103.177(a)(1). 

Finally, Section 319 requires covered financial institutions that provide correspondent accounts to foreign 

banks to maintain records of the foreign bank’s owners and to maintain the name and address of an agent in 

the United States designated to accept service of legal 

process for the foreign bank for records regarding the 

correspondent account. 
6

CHAPTER 1 BANKING

B A N K I N G — C H A P T E R 1 

Rank State/Territory Filings 

(Overall)

Percentage 

(Overall)

1 California 351,784 24.26%

2 New York 167,635 11.56%

3 Texas 92,168 6.36%

4 Florida 89,413 6.17%

5 Illinois 51,004 3.52%

6 Arizona 48,691 3.36%

7 New Jersey 41,403 2.86%

8 Pennsylvania 37,765 2.60%

9 Ohio 34,634 2.39%

10 Michigan 34,506 2.38%

Violation Type Filings 

(Overall)

Percentage 

(Overall)

BSA/Structuring/Money Laundering 769,502 48.22%

Check Fraud 185,839 11.65%

Other 136,021 8.52%

Credit Card Fraud 77,970 4.89%

Counterfeit Check 74,891 4.69%

Check Kiting 55,940 3.51%

Unknown/Blank 46,783 2.93%

Defalcation/Embezzlement 46,323 2.90%

Mortgage Loan Fraud 40,016 2.51%

Consumer Loan Fraud 27,240 1.71%

False Statement 26,724 1.67%

Misuse of Position or Self Dealing 18,460 1.16%

Wire Transfer Fraud 17,634 1.11%

Mysterious Disappearance 17,375 1.09%

Debit Card Fraud 11,315 Less than 1%

Commercial Loan Fraud 10,699 Less than 1%

Identity Theft* 10,188 Less than 1%

Computer Intrusion* 8,319 Less than 1%

Counterfeit Credit/Debit Card 6,573 Less than 1%

Counterfeit Instrument (Other) 5,142 Less than 1%

Bribery/Gratuity 1,799 Less than 1%

Terrorist Financing* 971 Less than 1%

The top ten states for Suspicious Activity Report filings from depository institutions from April 1, 1996 through June 30, 2004 account for 

two-thirds of all SARs for the period. Source: FinCEN, By The Numbers, Issue 3.

Table 1

Suspicious Activity Reports filed by depository institutions 

ranked by suspicious activity, based on filings from April 1, 

1996 to June 30, 2004.

* The category “computer intrusion” was added June 2000 and 

“identity theft” and “terrorist financing” were added July 2003. 

Source: FinCEN, By The Numbers, Issue 3.

Table 2
7

MONEY SERVICES BUSINESSES CHAPTER 2

M O N E Y S E R V I C E S B U S I N E S S E S — C H A P T E R 2

Chapter 

Mone

B

Money Services Businesses (MSBs) provide a 

full range of financial products and services 

outside of the banking system. For individuals 

who may not have ready access to the formal banking 

sector, MSBs provide a valuable service. They also 

pose a considerable threat. MSBs in the United States 

are expanding at a rapid rate, often operate without 

supervision, and transact business with overseas 

counterparts that are largely unregulated. Moreover, 

their services are available without the necessity of 

opening an account. As other financial institutions 

come under greater scrutiny in their implementation of 

and compliance with BSA requirements, MSBs have 

become increasingly attractive to financial criminals.

Under existing BSA regulations, MSBs are defined to 

include five distinct types of financial services providers 

(including the U.S. Postal Service (USPS)): (1) currency 

dealers or exchangers; (2) check cashers; (3) issuers of 

traveler’s checks, money orders, or stored value cards; (4) 

sellers or redeemers of traveler’s checks, money orders, 

or stored value; and (5) money transmitters. Because of 

the great variance in characteristics and vulnerabilities 

across the various types of MSB, the main categories 

of MSBs will be treated in separate subchapters below. 

Some introductory remarks follow that pertain to all 

MSBs. 

With limited exceptions, MSBs are subject to the full 

range of BSA regulatory controls, including the AML 

rule, suspicious activity and currency transaction 

reporting rules, and various other identification and 

recordkeeping rules.29 Additionally, existing BSA 

regulations require certain MSB principals to register 

with the Treasury Department.30 Federal regulations 

contain a definitional threshold for all MSBs except for 

money transmitters: A business that engages in MSBtype transactions will be considered an MSB only if it 

conducts more than $1,000 of transactions in a particular 

category of money services transactions for any person 

on any day (in one or more transactions).31 Finally, many 

states have established AML supervisory requirements 

that are often incorporated into the requirement that an 

MSB be licensed with the state in which it is incorporated 

or does business. 

Many MSBs, including the vast majority of money 

transmitters in the United States, operate through a 

system of agents. While agents are not presently required 

to register, they are themselves MSBs that are required 

to establish AML programs and comply with the other 

recordkeeping and reporting requirements described 

above. A 1997 Coopers & Lybrand study (Coopers 

Study) estimated that approximately eight business 

enterprises, through a system of agents, accounted for 

the bulk of MSB financial products offered within the 

United States and the bulk of locations at which these 

financial products were offered. This group comprises 

large firms with significant capitalization that are 

publicly traded on major securities exchanges. A larger 

group of, on average, far smaller enterprises competes 

with the largest firms in a highly bifurcated market for 

29 See 31 CFR 103.125 (requirement for money services businesses to establish and maintain an anti-money laundering program); 31 CFR 

103.22 (requirement for money services businesses to file currency transaction reports); 31 CFR 103.20 (requirement for money services 

businesses to file suspicious activity reports, other than for check cashing and stored value transactions); 31 CFR 103.29 (requirement for 

money services businesses that sell money orders, traveler’s checks, or other instruments for cash to verify the identity of the customer and 

create and maintain a record of each cash purchase between $3,000 and $10,000, inclusive); 31 CFR 103.33(f) and (g) (rules applicable to 

certain transmittals of funds); and 31 CFR 103.37 (additional recordkeeping requirement for currency exchangers including the requirement to 

create and maintain a record of each exchange of currency in excess of $1,000). 

30 See 31 CFR 103.41. The registration requirement applies to all money services businesses (whether or not licensed as a money services 

business by any state) except the U.S. Postal Service; agencies of the United States, of any state, or of any political subdivision of a state; 

issuers, sellers, or redeemers of stored value, or any person that is a money services business solely because that person serves as an agent of 

another money services business (however, a money services business that engages in activities described in § 103.11(uu) both on its own 

behalf and as an agent for others is required to register).

31 See 31 CFR 103.11(uu). 
8

CHAPTER 2 MONEY SERVICES BUSINESSES 

M O N E Y S E R V I C E S B U S I N E S S E S — C H A P T E R 2 

money services.32 These small enterprises may own 

only one location with two to four employees, and may 

provide both financial services and unrelated services 

or products.33 Less is known about this second tier of 

firms than about the major providers of money service 

products. 

Based on the Coopers Study, FinCEN estimated the 

number of MSBs nationwide in 1997 to be in excess of 

200,000. A majority of the MSB population is made up 

of agents of the major businesses (e.g., Western Union 

and MoneyGram). Additionally, in 1997, approximately 

40,000 MSBs were outlets of the USPS, which sells 

money orders. 

Outside of the major firms, rates of registration with 

Treasury have remained low. Despite repeated outreach 

efforts to the sector, only a small fraction of the total 

MSBs – around 23,000 – have registered with the 

federal government.34 FinCEN notes that small MSBs 

are largely aware of the pertinent regulations but fail to 

register because of language, culture, cost, and training 

issues. 

Vulnerabilities

The fleeting nature of the customer’s relationship with an 

MSB is a significant vulnerability. In contrast to banks, 

one does not need to be an existing “customer” of an 

MSB and a customer can repeatedly use different MSBs 

to transact business. This makes customer due diligence 

very difficult.

MSBs are used at all stages of the money laundering 

process. A review of SARs filed35 by MSBs from 

October 1, 2002 through December 31, 2004 shows that 

money laundering and structuring represented the most 

frequently reported suspicious activity, cited in over 

73% of MSB SARs filed. These reports point most 

commonly to customers attempting to evade the $3,000 

funds transfer recordkeeping requirement (or the $3,000 

recordkeeping requirement for cash purchases of money 

orders or traveler’s checks) by either breaking up a large 

transaction into smaller transactions or by spreading 

transactions out over two or more customers. 

OCDETF identifies MSBs as an increasingly-prevalent 

conduit for laundering illicit proceeds. From 2002 to 

2004, OCDETF saw a 5 percent increase in MSB-related 

cases, with the proportion of total money laundering 

cases growing from 11% to 16%.

FBI field offices consistently identified MSBs as the 

third-most utilized money laundering method that 

they encounter, after formal banking systems and cash 

businesses, and particularly pointed to money remitters 

as a threat. MSBs co-located with convenience stores 

Case Example 

Layering through M

SDNY-2002- An individual defendant laundered more than $700,000 worth 

of drug proceeds for a money laundering group associated with Colombian 

narcotics traffickers. The defendant wired funds to bank accounts in Panama, Barbados, and Honduras. As part of the defendant’s money laundering 

scheme, between November 1998 and June 2000, he made structured cash 

purchases of money orders totaling more than $600,000 without ever causing a Currency Transaction Report (CTR) report to be filed. On more than 

50 occasions, the defendant made multiple small purchases of postal money 

orders at various post office locations, as many as 11 on a single day, 

keeping them below the $3,000 recordkeeping threshold. The defendant 

completed the money orders in his name, the name of his company, and the 

names of relatives and friends, and then deposited the money orders into 

his company’s business bank account. The defendant also exchanged more 

than $500,000 worth of what he understood was drug money for checks 

from various business accomplices, including numerous carpet dealers. 

This activity was determined to have been an intentional circumvention of 

federal reporting requirements. 

1

32 For example, according to the Coopers study, at the time of that study, two money transmitters and two traveler’s check issuers made up 

approximately 97 percent of their respective known markets for non-bank money services. Three enterprises made up approximately 88 per 

cent of the $100 billion in money orders sold annually (through approximately 146,000 locations). The retail foreign currency exchange sector 

was found by Coopers & Lybrand to be somewhat less concentrated, with the top two non-bank market participants accounting for 40 per cent 

of a known market that accounts for $10 billion. Check cashing is the least concentrated of the business sectors; the two largest non-bank 

check cashing businesses make up approximately 20 per cent of the market, with a large number of competitors. 33 Members of the second group may include, for example, a travel agency, courier service, convenience store, grocery or liquor store. 34 It is not known how many unregistered MSBs exist that require registration. The 1997 Coopers Study estimate of 200,000 included all 

MSBs, and is not indicative of the number of MSBs requiring registration.

35More than one violation may be identified on a single SAR.
9

MONEY SERVICES BUSINESSES CHAPTER 2

M O N E Y S E R V I C E S B U S I N E S S E S — C H A P T E R 2

and gas stations were cited as the most common sites 

for money laundering, with travel agencies that offer 

MSB services also noted as an increasingly prominent 

conduit for the illicit transmission of money. Anecdotal 

reporting by law enforcement points to the use of MSBs 

in counterfeit check schemes and non-government 

charitable organizations (NGOs) utilizing MSBs to 

transfer proceeds internationally to support terrorist 

organizations and terrorist-related activities. 

Several FBI field offices reported the laundering of 

millions of dollars derived from Internet extortion and 

fraud schemes through MSBs such as Western Union, 

PayPal, e-gold Limited, and other online payment 

systems. 

Vulnerabilities particular to specific types of MSBs will 

be explored in the respective sub-chapters below.

Geographic Concentration 

Analysis of FinCEN data from October 1, 2002 through 

December 31, 2004 indicates that MSBs located in New 

York and California filed more MSB SAR forms than 

MSBs in any other state, followed by Arizona, Texas, 

Florida, Colorado, New Jersey, Massachusetts, Georgia, 

and Illinois. These numbers indicate a concentration 

of illicit financial activity in major, densely populated 

cities and along the Southwest border. 

Law enforcement also identified geographic 

concentrations of MSB money laundering activity 

in highly-populated cities but did not identify 

California or the Southwest border as focal points 

for illicit MSB activity, despite the high volume 

of suspicious activity reported by MSBs in these 

regions to FinCEN. 

With respect to destinations, most federal law 

enforcement agencies identified Mexico as the 

primary destination for suspicious funds sent 

through MSBs. Other prevalent destinations 

were Russia, Colombia, the Dominican Republic, 

and various locations in Central and South 

America. The majority of these investigations 

dealt with narcotics trafficking organizations. 

Investigations have also noted increased money 

laundering concerns among Middle Easterners in 

the United States operating MSBs and sending 

funds to Egypt, Sudan, and other locations in the 

Middle East. 

Regulation and Public Policy

As of December 31, 2001, all MSB principals (not 

individual agents) were required to register with FinCEN, 

listing the owner or controlling person. Each business 

that meets the definition of an MSB must register, except 

for the following:

A business that is an MSB solely because it serves 

as an agent of another MSB;

A business that is an MSB solely as an issuer, 

seller, or redeemer of stored value;

The USPS and agencies of the United States, of 

any state, or of any political subdivision of any 

state; and

A branch office of an MSB is not required to file its 

own registration form.

MSB registrations must be renewed every two years. 

Failure to register is punishable by a civil fine or criminal 

prosecution under 18 U.S.C. § 1960, which prohibits the 

operation of an unlicensed money transmitting business. 

For purposes of 18 U.S.C. § 1960, an unlicensed money 

transmitting business is a person who knowingly 

conducts, controls, manages, supervises, directs, or 

owns all or part of a money transmitting business, and 

who fails to register as required with FinCEN, or in 

•

•

•

•

Table 3

MSB Suspicious Activity Reporting Ranking by States 10/1/02-12/31/04 

Ranking State % of MSB 

SARs Filed* % of US MSB SARs

#1 New York 17%

49%

#1 California 17%

#2 Arizona 9%

#3 Texas 8%

#4 Florida 6%

25%

#5 Colorado 4%

#6 New Jersey 4%

#7 Massachusetts 3%

#8 Georgia 3%

#9 Illinois 3%

*Percentages rounded to nearest whole number.
10

CHAPTER 2 MONEY SERVICES BUSINESSES 

M O N E Y S E R V I C E S B U S I N E S S E S — C H A P T E R 2 

certain circumstances, operates without a required state 

license. MSBs which fail to register also may be liable 

for civil money penalties of up to $5,000 for each day 

the violation continues and a criminal penalty of up to 

five years imprisonment. 

All MSBs must establish AML programs, and obtain 

and verify customer identity and record information 

about the transaction, including beneficiary information 

if received, for funds transfers of more than $3,000 

regardless of whether the activity appears suspicious or 

not. They must also keep records regarding the cash 

purchase of money orders and traveler’s checks between 

$3,000 and $10,000, and certain records regarding their 

currency exchange transactions. In addition, all MSBs 

are required to file reports of transaction in currency of 

more than $10,000.

As of January 1, 2002 most MSBs are required to report 

suspicious activity. The SAR requirement does not apply 

to check cashers or to sellers and redeemers of storedvalue. An MSB is required to file a SAR on a transaction 

or series of transactions conducted or attempted by, at, 

or through the MSB if both of the following occur: 

The transaction or series of transactions involves 

or aggregates funds or other assets of $2,000 or 

more, and 

The MSB knows, suspects, or has reason to suspect 

that the transaction (or a pattern of transactions of 

which the transaction is a part) falls into one or 

more of the following categories: 

Involves funds derived from illegal activity 

or is intended or conducted in order to hide or 

disguise funds or assets derived from illegal 

activity as part of a plan to violate or evade 

any federal law or regulation or to avoid 

any transaction reporting requirement under 

federal law or regulation; 

Is designed to evade any BSA regulation; 

Has no business or apparent lawful purpose or 

is not the sort in which the particular customer 

would normally be expected to engage, and 

the MSB knows of no reasonable explanation 

•

•

1.

2.

3.

for the transaction after examining the 

available facts, including the background and 

possible purpose of the transaction; or 

Involves use of the MSB to facilitate criminal 

activity. 

Despite the regulatory requirements, the majority of 

MSBs in the United States continue to operate without 

registering with FinCEN. Information obtained from 

SAR analysis indicates some lack of understanding 

by MSBs about registration requirements, especially 

among operators of small businesses that also provide 

MSB services. While some individuals made no 

attempt to register with FinCEN, others provided partial 

registration documentation. Other brokers, when given 

a thorough explanation of the registration process, were 

willing to comply with registration requirements. The 

relative novelty of the regulatory regime and the lack 

of familiarity by MSB operators about government and 

vice versa will continue to present challenges for both 

regulators and law enforcement.

IRS SB/SE has been delegated authority to examine MSBs 

for BSA compliance. A staff of several hundred IRS SB/

SE full-time BSA examiners evaluates compliance with 

the reporting and record-keeping requirements of the 

BSA and Section 6050I of the Internal Revenue Code. 

Monetary thresholds and the Sentencing Guidelines 

often impede the prosecution of 18 USC § 1960 

violations. U.S. Attorney’s Offices may be restricted 

by guidelines that force prosecutors to either decline or 

defer prosecutions of 18 USC § 1960 violations because 

the amount of money at issue is too small. Additionally, 

the relative newness of 18 USC § 1960 may limit its 

use by law enforcement and U.S. Attorney’s Offices. 

Despite these factors, the Department of Justice has 

successfully prosecuted numerous 18 USC § 1960 

violations, particularly in major metropolitan areas such 

as New York and Chicago. 

The following sub-chapters will address the particular 

characteristics and vulnerabilities of Money Transmitters, 

Check Chasers, Currency Exchangers, Money Orders, 

and Stored Value Cards.

4.
11

MSB: MONEY TRANSMITTERS CHAPTER 2

M S B : M O N E Y T R A N S M I T T E R S — C H A P T E R 2

Mon

The financial services industry, law enforcement, 

and regulators interchangeably refer to nonbank money transmitters as money remitters, 

wire remitters, and wire transmitters, hereinafter money 

transmitters.36 The sheer volume and accessibility of 

money transmitters makes them attractive vehicles to 

money launderers operating in nearly every part of the 

world. Western Union runs the largest non-bank money 

transmitter network, with more than 225,000 agent 

locations in 195 countries and territories worldwide.37 

As the overwhelming majority of wire transfers at 

MSBs are paid for with cash, money transmitters 

provide excellent camouflage for the initial introduction 

of the illicit proceeds into the financial system. Money 

transmitters offer inexpensive services, and often 

impose less rigorous AML programs and compliance 

than traditional financial institutions. 

A funds transfer can generally be described as a series 

of steps, beginning with the originator’s (customer’s) 

instructions and including a payment message, which is 

used for the purpose of making payment to the beneficiary 

(receiving customer). There are a wide range of potential 

sources of funds for initiating a funds transfer, which 

include: cash, certified checks, cashier’s checks, money 

orders, traveler’s checks, account withdrawal, and credit 

and debit cards.

Vulnerabilities

The vulnerabilities endemic to MSBs in general 

– discussed above – also apply to money transmitters. 

As with all industries subject to reporting thresholds, 

money launderers attempt to abuse money transmitters 

by structuring transactions below federal reporting 

thresholds. Owners or employees of registered money 

transmitters may help money launderers avoid reporting 

requirements by falsifying records to make it appear as 

though a large amount of laundered money was derived 

from a series of small transactions. Money transmitters 

may also knowingly permit individuals to make frequent 

structured transactions using false names and telephone 

numbers for each transaction. 

The rapid movement of funds between accounts in 

different jurisdictions increases the complexity of 

investigations. In addition, investigations become even 

more difficult to pursue if the identity of the originator 

is not clearly shown in an electronic payment message 

message. 

Money transmitters remain a particularly attractive 

vehicle for money laundering due to several inherent 

characteristics of the industry: 

Large money transmitters maintain agent offices 

in thousands of cities and scores of countries, 

allowing customers to move funds from nearly any 

location directly to any other location; 

Money transmitters provide for rapid service, 

transmitting funds instantly or in days;

The sheer volume of legitimate cash transactions 

provides an excellent camouflage for money 

laundering activity in the placement stage;38 

Money transmitter services are relatively 

inexpensive as compared with other means utilized 

by money launderers, often charging 10-20 percent 

per transmission; and 

Money transmitters increasingly provide online 

payment services and accept credit and debit cards. 

Although there are often identification safeguards 

in place – MSBs must verify identity with valid 

forms of identification and often utilize security 

features like password protection and online 

validation by third parties for signature verification 

– the lack of face-to-face interaction between the 

customer and the MSB limits the ability of MSBs 

to detect suspicious activity, as with other financial 

services provided through the Internet.

•

•

•

•

•

36 Informal value transfer systems (IVTS), such as hawalas, are treated seperately in Chapter 4.

37 See “About Western Union.” Accessed at: http://www.westernunion.com/info/aboutUsIndex.asp?country=global. 38The three stages of money laundering are: (1) Placement, in which illicit proceeds are introduced into the financial system; (2) Layering, in 

which the criminal attempts to separate the proceeds from the crime through a series of transactions; and (3) Integration, in which the illicit 

proceeds are made to look legitimate through investment in legal assets.
12

CHAPTER 2 MSB: MONEY TRANSMITTERS 

M S B : M O N E Y T R A N S M I T T E R S — C H A P T E R 2 

Unregistered money transmitters offer money 

launderers many of the same advantages as registered 

money transmitters, with the added benefit of additional 

anonymity:

The failure to follow federal reporting requirements 

reduces transparency yet further;

Unregistered money transmitters frequently 

maintain coded records which may be inscrutable 

to investigators; and 

Unregistered transmitters may not advertise and 

may operate from locations with other primary 

purposes, such as gas stations, grocery stores, and 

residences, making them more difficult to detect. 

These businesses will often use such cash-intensive 

retail businesses to justify large-scale bank deposits 

and transfers. 

Demographic and Regional Concentrations

Ethnic immigrant communities are heavy users of money transmitter services, particularly to send money home 

to their native countries. Typically, members of these 

communities will use multiple services of an MSB, such 

as money transmission in conjunction with check cashing and/or currency exchange. DEA, ICE, FBI, FinCEN, and OCDETF have noted Middle Eastern, Asian, 

and Latin American – specifically Mexican – immigrant 

communities in major metropolitan areas as primary users of money transmitter services. 

Frequently identified points of origin for money transmissions were New York, Los Angeles, Chicago, Dallas, Houston, Phoenix, Tucson, Seattle, and San Juan. 

Law enforcement reporting indicates that a large amount 

of illicit funds laundered through money transmission 

services are sent to the southwest border of the United 

•

•

•

States. Roma, McAllen, Benita, Brownsville, Harlingen, Hidalgo, and Rio Grande City are the primary Texas border towns receiving wires, while Houston, and increasingly Dallas, are the primary cities receiving wires. 

The unusually large number of wires being received at 

the southwest border is particularly apparent in southern Arizona, where $12 are received for every $1 sent. 

As discussed below, this disparity may be accounted for 

in bulk cash movements south of the border. Some observed trends in predicate crimes by origin/destination 

are described in Table 4. 

In the New York/New Jersey area, money transmittal 

businesses are extremely prevalent and witness a great 

deal of money laundering. Vulnerabilities particular to 

specific types of MSBs will be explored in the respective sub-chapters below. OCDETF identified the most 

prevalent area of suspicious activity as Jackson Heights, 

Queens, which purportedly contains the largest Colombian community outside of Colombia itself.

OCDETF also reports Colombian and Dominican drug 

trafficking organizations actively utilizing New England-based money transmitters to wire illicit drug proceeds to criminal recipients in Colombia and the Dominican Republic, despite some successful prosecutions 

in this arena.

Internationally, ICE notes that wires sent from the Los 

Angeles area were primarily destined for South/Central 

America, Asia, Europe, and the Middle East, while wires 

sent from the New York area were primarily destined for 

Colombia and the Dominican Republic. 

Money Transmitter Trends in Southern Arizona

Money transmissions received in southern Arizona and 

Texas are typically sent in amounts of less than $3,000. 

Destination Origin Points Predominant 

Predicate Crime

Southern Arizona California Narcotics trafficking

Southwest Border New York, New Jersey, North Carolina and Florida Alien trafficking

Texas New York, Florida, North Carolina, and New Jersey Alien trafficking, narcotics trafficking to a lesser extent

Table 4
13

MSB: MONEY TRANSMITTERS CHAPTER 2

M S B : M O N E Y T R A N S M I T T E R S — C H A P T E R 2

When alien trafficking is the predicate crime, it is 

believed that this amount does not indicate structuring 

but rather the relatively small amounts involved in 

individual instances of alien trafficking. When the 

transactions are received at the border, however, they 

become structured as the same receiver must collect the 

transactions individually in order to keep them under the 

$3,000 threshold. 

From the southwest border, the funds are generally 

bulk shipped south. From Arizona, most of the money 

is smuggled across the border in passenger cars in 

amounts under $100,000, with a small amount retained 

at the border to cover the operational costs of the alien 

smuggling operation. In Texas, 60-70 percent of the 

funds are bulk shipped across the border.39

After being bulk shipped across the border, the 

previously wired funds are generally returned to the 

United States. ICE reports that this is accomplished by 

wiring the money back to the United States, although 

various methods – some as simple as returning the funds 

via bulk cash shipment – can be used. When reentering 

the country, the illicit funds are documented, appear to 

be legitimate, and may then be used to meet the financial 

needs of the money launderers within the United States. 

Regulation and Public Policy

In addition to the rules applicable to all MSBs, money 

transmitters are required to collect information regarding 

wire transfers involving $3,000 or more and retain 

these records for five years. As of January 1, 2002, all 

money transmitters must maintain a list of agents and 

have it available for review. The list must include such 

information as the agent’s name, depository institution, 

and the number of branches and subagents. A business 

acting solely as an agent of a money transmitter is not 

required to register with FinCEN. However, the agent 

must notify the money transmitter when it establishes 

subagents so that the transmitter may revise its agent list 

as required by FinCEN each January 1. 

39 Houston Money Laundering Initiative (HMLI).

Received in 

Arizona*

Originated in 

Arizona*

GA 19.9 0.7

IL 25.7 0.7

NC 12.1 0.2

NJ 16.7 0.3

NY 31.6 1.1

PA 6.6 0.3

Total 112.6 3.4

*Millions of U.S. Dollars1 

Table 5
14

CHAPTER 2 MSB: CHECK CASHERS

M S B : C H E C K C A S H E R S — C H A P T E R 2 

Chec

Check cashers provide essential services for 

persons without bank accounts. Criminals 

can and do abuse these services, however, to 

launder illicit funds, often in conjunction with money 

transmitters and informal value transfer systems (IVTS). 

Not all check cashers perform the same services and 

thus not all check cashers pose the same vulnerabilities 

or levels of risk.

Vulnerabilities 

Money launderers use check-cashing businesses to 

launder funds via third-party checking. To do this, 

a money launderer may make daily visits to small 

businesses in order to purchase checks made out to 

that business by uninvolved third parties. By selling 

these checks to the launderer, the business benefits by 

receiving immediate cash, avoiding banking or check 

cashing fees, avoiding income taxes, and passing on the 

risk of bad checks to the launderer. The launderer pays 

for the checks using illicit cash, and can then redeem 

the checks without causing the filing of a Currency 

Transaction Report (CTR) by not taking payment in 

cash. Money launderers sometimes purchase check 

cashing businesses outright, in which case checks can 

be deposited directly into the launderer’s bank account, 

also without a CTR being filed. 

Check-cashing businesses engaged in money laundering 

via third party checks typically will only withdraw a 

portion of the sum of checks being deposited, making 

up the remainder with dirty cash. This activity may 

generate a SAR. However, banks and law enforcement 

agencies may not immediately recognize this activity as 

suspicious, as the check-cashing business may reasonably 

hold accounts at other institutions from which the cash is 

being withdrawn. Illicit check-cashers may also arouse 

suspicion by withdrawing bills in large denominations. 

To avoid scrutiny, money launderers will frequently 

send endorsed third-party checks out of the country to 

be cashed or deposited. When these checks are cashed 

or deposited at foreign banks, the U.S. bank may take 

note during the clearing process and file a SAR. Thirdparty checks are also used to send value overseas, akin 

to money orders. Because these checks are physically 

lighter and occupy less space than their cash equivalents, 

it is easier for money launderers to bulk ship or mail 

packages of these monetary instruments out of the 

country. For narcotics traffickers, shipping checks is 

also preferable to shipping currency because narcotics 

residues are less likely to adhere to paper checks than to 

currency, reducing the likelihood that police dogs will 

detect them.

Law enforcement has reported several examples of 

abuse in the check cashing industry. In one case, IRSCI reported that numerous corporate checks stolen from 

the mail were eventually negotiated at a check casher. 

The FBI has witnessed an increase in money laundering 

through check cashing services and FBI field offices 

throughout the United States are observing large amounts 

of money flowing through structured deposits involving 

check cashing services. Drug trafficking organizations 

are noted as frequent users of this laundering method. 

Others have observed these services used by 

undocumented immigrants sending money to Mexico 

and the Middle East. The lack of record-keeping 

requirements for check cashers hinders law enforcement 

efforts to identify the source of the suspect funds.

Regulation and Public Policy

Check cashers, like most MSBs, must register with 

FinCEN. Although check cashers are required to file 

CTRs for cash transactions greater than $10,000, they 

are not currently required to file SARS (although they 

may do so voluntarily). 

Only 24 states currently have specific check cashing 

legislation or regulations. Check cashers are often 

required to be licensed but are subject to less state 

regulatory oversight than other money service businesses, 

like sellers of money orders or traveler’s checks. This is 

due, in part, to a perception that check cashing poses a 

comparatively smaller risk to consumers. Likewise, net 

worth requirements are typically less stringent for check 

cashers. State banking authorities or other supervisory 

bodies also examine these businesses less frequently.

The exemption of check cashers from SAR reporting 

requirements may hinder law enforcement efforts to 

identify laundering through this channel. 
15

MSB: CURRENCY EXCHANGERS CHAPTER 2

M S B : C U R R E N C Y E X C H A N G E R S — C H A P T E R 2

Curre

Currency exchangers, also referred to as currency 

dealers, money exchangers, casas de cambio, 

and bureaux de changes, provide conversion 

of bank notes of one country for that of another and 

may be abused by criminals in order to launder illicit 

funds, particularly during the placement stage of money 

laundering. 

Although currency exchange, in and of itself, poses a 

less serious money laundering risk than the services 

provided by other MSBs, certain elements of the currency 

exchange sector, such as casas de cambio, play a major 

role in money laundering operations, particularly for 

narcotics organizations. Currency exchange is the MSB 

subject to the least state regulation, with fewer than ten 

states currently regulating this activity.

Vulnerabilities

Currency exchange businesses are predominately 

located along shared borders, at international airports, 

and in large tourist areas. The services provided by 

currency exchange houses allow money launderers to 

exchange large quantities of small-denomination bills 

for large-denomination bills of the same or different 

currency. Thus exchanged, the bills can be more easily 

bulk shipped or deposited in bank accounts. Currency 

exchange houses are also used to provide additional 

cloaking in a funds transfer chain. An exchange house 

may, for example, accept cash from a customer which it 

then deposits in its own account at a commercial banking 

institution. The origin or source of the funds would be 

disguised because the bank will attribute ownership to 

the currency exchange business. 

Currency exchange businesses also regularly offer 

money transmission services, compounding the threat 

by introducing the money transmitter risks discussed 

above.

Casas de Cambio

Casas de cambio are currency exchange houses 

specializing in Latin American currencies and 

transactions. In the United States, these businesses are 

concentrated along the southwest border, with over 1,000 

casas de cambio located along the border from California 

to Texas. These currency exchangers generally offer 

other MSB services, and often exist in combination with 

retail businesses such as gas stations and travel agencies. 

These businesses are generally unregistered and noncompliant with MSB SAR reporting requirements, and 

are suspected of being the primary non-bank money 

laundering mechanism in the southwest border area. 

Typical casas de cambio can launder as much as $5 

million per month, primarily on behalf of drug traffickers. 

Casas de cambio are often run from mobile or temporary 

locations such as pickup trucks, trailers, sheds, and even 

telephone booths so that operations may be quickly 

relocated to avoid law enforcement. U.S.-based casas de 

cambio typically maintain close relationships with their 

Mexican counterparts in order to facilitate transactions 

such as funds transfers.

Some casas de cambio exist for the primary purpose of 

facilitating money laundering activities. Although casas 

de cambio are required to file Reports of International 

Transportation of Currency or Monetary Instruments 

(CMIRs) and Currency Transaction Reports (CTRs), 

they will commonly move money on behalf of many 

clients in a bulk transaction conducted under the name 

of the exchange house, thus cloaking the identity of the 

true originators. Any SARs filed in these cases by banks 

or other intermediaries will report the casa de cambio as 

the violator, often leading to an investigative dead end. 

Seized documents in raids conducted by the Venezuelan 

Guardia Nacional on casas de cambio and businesses in 

the Venezuelan state of Tachiria revealed that a number 

of casas de cambio were laundering drug proceeds 

originating from the United States through Venezuela 

to Colombia. Venezuela was being used to avoid 

Colombia’s relatively high tariff on U.S. currency. It 

was later discovered that numerous casas de cambio

involved in the money laundering process had U.S. dollar 

checking accounts through correspondent accounts held 

by major banks in Venezuela.

Regulation and Public Policy

Currency exchangers are subject to general MSB 

regulations and are required to file SARs. In a sampling 

of 44 SARs filed by Currency Exchangers, FinCEN 

found that structuring was the most reported violation 

(29%), followed by altering the transaction to avoid 

reporting (20%), and two or more individuals conducting 

coordinated transactions (20%). The suspects reported 

in these SARs resided or transacted in Illinois and 

southwest border states, as well as Mexico, Canada, 
16

CHAPTER 2 MSB: CURRENCY EXCHANGERS

M S B : C U R R E N C Y E X C H A N G E R S — C H A P T E R 2 

Colombia, and Spain. 

The amounts of violations reported in these SARs 

ranged from $0-$25 million. The violation ranges were 

as follows:

With regard to the 13 SARs reporting violations involving 

money exchangers exclusively, the violation amounts 

ranged from $425 through $41,983, and structuring was 

the most reported violation, appearing in 7 of the 13 

SARs (54%).

A review of money exchange SAR narratives reveals the 

following recurring patterns:

The exchange of foreign currency for U.S. dollars 

(USD);

Submitting U.S. currency in specific denominations 

such as $1’s, $5’s, and $10’s;

Odor on the currency; 

Two or more individuals working together to 

exchange pesos in an amount under the reporting 

requirement;

Regular exchanges of similar amounts of currency. 

A California MSB reported a customer for regularly 

exchanging USD into pesos. Amounts ranging 

from $300-$800 USD were exchanged daily. The 

bills were all in small denominations under $1,000. 

At one point, the customer transacted over $1,000, 

prompting the exchange house to ask for ID and the 

purpose of the transactions. The suspect stated that 

she had a grocery store in California and bought 

supplies in Mexico. After she was questioned by 

•

•

•

•

•

the filer, the suspect ceased doing business with 

this MSB; and 

Unusually large exchanges of currency. One SAR 

reported a suspect in connection with the exchange 

•

Amount Number of SARs Percentage of Total Filings

$0-$999 5 11%

$1,000-$9,999 31 70%

$10,000-$99,999 7 9%

$100,000-$25 

million 1 --

Table 6

of 100,000 pesos for USD. The suspect balked 

when asked for ID, but did supply it. He later 

returned with a woman he identified as his client, 

who also exchanged 100,000 pesos for USD. A 

Texas MSB reported that, in one month, a Mexican 

suspect exchanged nearly $42,000. Another SAR 

reported a Spanish suspect who visited two Miami 

International Airport currency exchanger locations 

in three days and exchanged Euros for USD in the 

total amount of $21,290. 
17

MSB: MONEY ORDERS CHAPTER 2

M S B : M O N E Y O R D E R S — C H A P T E R 2

Mon

Money orders are a highly versatile vehicle 

for money laundering, useful for a number 

of financial crimes ranging from smuggling 

narcotics trafficking proceeds to depositing illicit 

proceeds from alien smuggling and corporate fraud into 

bank accounts. 

Money orders are used by approximately 30 million 

people annually to conduct business such as paying bills 

and sending money back to families in foreign countries. 

It is estimated that over 830 million money orders in 

excess of $100 billion are issued annually. The money 

order industry is small compared to that of other MSBs 

and easier to assess. Eighty percent of all money orders 

are issued by the USPS, Western Union, and Traveler’s 

Express/MoneyGram. The remaining 20 percent 

are issued by smaller, regional companies scattered 

throughout the United States.

Vulnerabilities

As a money laundering vehicle, money orders have 

several attractions. First, money orders can be issued in 

high-dollar denominations and are much less bulky than 

cash. Money orders are also replaceable if lost. 

Anonymity is another major attraction. Money orders 

are issued anonymously for amounts under $3,000. Most 

money order sellers/issuers do not have any relationship 

with their customers and very little, if any, information is 

required to purchase a money order. Without originating 

information, it can be impossible for law enforcement to 

detect patterns of unlawful activity by an individual or 

group, or to track suspicious transactions to their source 

or ultimate recipient. 

USPIS, FBI, DEA, and ICE investigations have all 

repeatedly noted dirty cash being converted to money 

orders to hide its true source and/or to shrink the physical 

size of the contraband in order to facilitate smuggling 

it out of the country. Commonly cited international 

destinations include Lebanon, the Palestinian territories, 

United Arab Emirates, Saudi Arabia, and Central and 

South America. 

Financial hubs that see the greatest volume of money 

order activity are New York/New Jersey, Los Angeles, 

El Paso, Dallas, Miami, Boston, and San Francisco. 

DEA, USPIS, ICE, and the New York/New Jersey High 

Risk Money Laundering and Related Financial Crimes 

Areas (HIFCA) 40 all report significant money laundering 

activity with money orders in these regions. OCDETF 

has consistently reported that approximately 20 percent 

of its newly-initiated money laundering investigations 

contains a money order component. Law enforcement, 

primarily ICE and DEA, and the regulatory community 

have seen a steady stream of money order use by 

launderers moving bulk cash from narcotics transactions 

to Mexico and other regions of Latin America. DEA 

and ICE report an area of increasing concern is the use 

of Mexican casas de cambio used to transport proceeds 

through money orders into Mexico. The vulnerabilities 

presented by money orders and the relative lack of 

regulatory oversight of casas de cambio in many foreign 

countries create an attractive environment for individuals 

seeking to launder illicit proceeds. 

40 HIFCAs were conceived in the Money Laundering and Financial Crimes Strategy Act of 1998 as a means of concentrating law enforcement 

efforts at the federal, state, and local levels in high intensity money laundering zones. HIFCAs may be defined geographically or they can also 

be created to address money laundering in an industry sector, a financial institution, or group of financial institutions.
18

CHAPTER 2 MSB: MONEY ORDERS 

M S B : M O N E Y O R D E R S — C H A P T E R 2 

The illustration below presents a typical cycle of money 

laundering through the use of money orders.41

Regulation and Public Policy 

Regulatory requirements for MSBs that issue money 

orders are the same as those for MSBs in general, as set 

out above. In addition, many money order businesses 

impose their own lower dollar thresholds, such as not 

selling more than $2,000 in money orders to a customer in 

a given day, which obviate the need for CTR reporting. 

Of the total SARs filed for MSBs from October 1, 

2002 through December 31, 2004, 32 percent involved 

money orders. The great majority of these money orderrelated SARs (93%) were filed by USPS. USPS reported 

approximately $296.9 

million in suspicious money 

order activity equaling 

approximately .01% of 

the total face value issued 

in 2003. In 2004, USPS 

reported $408.5 million 

in suspicious money 

order activity, equaling 

approximately .014% of 

the total face value issued. 

The increase from 2003 to 

2004 by .005% is believed 

to reflect USPS’s lowering 

of its “back-end” threshold 

for detecting suspicious 

activity from $10,000 to 

$5,000. 

Trends identified in the 

SARs filed include the 

following:

The purchase of multiple, 

structured money orders 

on the same day or within 

a short period of time; on 

many SARs it was noted 

that when the customers 

were informed of the 

reporting threshold, they 

changed their purchase to 

lower amounts;

Money order deposits to the same bank account 

composed of multiple, sequentially numbered 

money orders;

Customers lacking proper identification, or 

providing false identification, leading some filers 

to conclude that these customers could be illegal 

aliens;

Structured purchases frequently followed by the 

deposit of the money orders into the same bank 

account;

•

•

•

•

41 FinCEN.

Illustration 1
19

MSB: MONEY ORDERS CHAPTER 2

M S B : M O N E Y O R D E R S — C H A P T E R 2

Individuals coming into the Post Office together, 

but separating inside to make the purchases from 

different tellers because the combined total of the 

money orders purchased exceeded the reporting 

threshold; and 

Money order purchases being paid for with currency 

in specific denominations, sometimes bundled into 

stacks, indicating organized-crime involvement. 

Anti-money laundering training is required of money 

order businesses, but this training can be quite cursory. 

Common vendors of money orders, such as small 

convenience stores, may neither understand nor value 

BSA compliance. When AML training is offered, it is 

typically thin, such as requiring employees to read a brief 

pamphlet. The fact that the workforce at these businesses 

is frequently comprised of part-time, younger, and 

less-educated employees with an extraordinarily high 

turnover rate, further complicates the training effort. 

There is also an accountability gap. All money order 

issuers, aside from the USPS, rely to a large extent on 

licensed agents, rather than employees, to sell their 

instruments. The parent firms have a responsibility to 

review activity across their agent network but are not 

required to review individual SARs. Indeed, some firms 

specifically discourage their agents from submitting 

SARs to the parent firm.42 

Western Union and MoneyGram combined – which 

represent over 50% of the money orders issued in the 

United States – represented only 1 percent of all SARs 

filed from October 1, 2002 through December 31, 2004, 

where money laundering was listed as the Category of 

Violation and where money orders was identified as the 

Financial Service(s) Involved. By comparison, USPS – 

which represents one-quarter of all money orders issued 

in the United States – represented 93 percent of such 

SAR activity. 

•

•

42 See, e.g., Travelers Express “Anti-Money Laundering Compliance Guide,” July 2002. Accessed at: http://www.moneygram.com/forms/

agentguide.pdf. 
20

CHAPTER 2 MSB: STORED VALUE CARDS

M S B : S T O R E D V A L U E C A R D S — C H A P T E R 2 

Store

Stored value cards (sometimes referred to as 

prepaid cards) are an emerging cash alternative for 

both legitimate consumers and money launderers 

alike. The term “stored value cards” can cover a variety 

of uses and technologies. Some cards have embedded 

data processing chips, some have a magnetic stripe, and 

some cards (e.g. prepaid phone service cards) just have 

an access number or password printed on them (the card 

itself cannot access or transfer cash). 

Stored value cards can be characterized as operating 

within either an “open” or “closed” system (See Table 

7). Open system cards can be used to connect to global 

debit and automated teller machine (ATM) networks. 

The cards can be used for purchases at any merchant or 

to access cash at any ATM that connects to the global 

payment networks.43 Such open system card programs 

generally do not require a bank account or face-to-face 

verification of cardholder identity. Funds can be prepaid 

by one person, with someone else in another country 

accessing the cash via ATM. Open system stored value 

cards typically may be reloaded, allowing the cardholder 

to add value.

Closed system44 cards are limited in that they can only 

be used to buy goods or services from the merchant 

issuing the card or a select group of merchants or service 

providers that participate in a network that is limited 

geographically or otherwise. Examples of closed system 

cards include retail gift cards, mall cards, and mass transit 

system cards, as well as the multipurpose cards used on 

overseas U.S. military bases and on college campuses. 

These cards may be limited to the initial value posted to 

the card or may allow the card holder to add value.45 

Stored value cards offer individuals without bank 

accounts an alternative to cash and money orders. 

Target markets include teenagers, the unbanked, adults 

unable to qualify for a credit card, and immigrants 

sending cash to family outside the country. The 

unbanked in the United States comprise an estimated 

10 million households and 75 million individuals.46

A growing segment of the stored value card market 

consists of businesses and government agencies using 

plastic cards to replace paper vouchers, checks, and cash 

for per diems, insurance and health benefit payments, 

and even payroll. Issuers see the greatest fee potential, 

however, among the unbanked, who, by using the cards 

in place of cash and money orders, generate transaction 

fees with every purchase and every cash withdrawal.47

Vulnerabilities

Stored value cards provide a compact, easily 

transportable, and potentially anonymous way to store 

and access cash value. Open system cards lower the 

barrier to the U.S. payment system, allowing individuals 

without a bank account to access illicit cash via ATMs 

globally. Closed system cards, primarily store gift cards, 

present more limited opportunities and a correspondingly 

lower risk as a means to move monetary value out of 

the country. Yet federal law enforcement agencies 

43 International networks on which open system cards can be used include Visa’s Plus (ATM) and Interlink (point-of-sale) networks and 

MasterCard’s Cirrus (ATM) and Maestro (point-of-sale) networks.

44 Smart cards are another version of a closed system card, but are not widely used in the U.S. In some countries, smart cards have an 

embedded data processing chip that carries bank-issued electronic money. The cards can transfer money directly to participating merchants 

without the transaction going through an intermediary. The merchant or service provider’s bank redeems the stored electronic payments as 

conventional cash from the bank that issued the e-money. In some countries, smart cards have achieved modest acceptance for domestic 

small-value purchases. Smart cards are also used in countries with inefficient telecommunications, so that merchants do not need to query a 

central database for transaction authorizations.

45 Some retailers do offer redemption of gift cards for cash, but they do not openly advertise that this is an option. In this scenario, the gift 

cards can be used to launder funds and hide the paper trail of not only the source of the funds used to purchase the cards, but also where the 

funds go if the cards are redeemed for cash.

46 Hillebrand, Gail, Payment Mechanism: New Products, New Problems, Consumers Union, presentation delivered at the Federal Reserve Bank 

of Chicago, May 29, 2003. Accessed at: http://www.chicagofed.org/news_and_conferences/conferences_and_events/files/2003_payments_

conference_gail_hillebrand_presentation.pdf. 47 Issuers have triggered a backlash by going beyond transaction fees, adding charges for checking a balance, adding cash, or even doing 

nothing (“inactivity” fees), drawing criticism from consumer rights advocates and attorneys general. For example, California, Washington, 

and New Hampshire have passed laws curtailing prepaid card fees and practices. Connecticut, Massachusetts, New Hampshire, and New York 

have filed lawsuits against the Visa-branded Simon Malls card specifically because of fees.
21

MSB: STORED VALUE CARDS CHAPTER 2

M S B : S T O R E D V A L U E C A R D S — C H A P T E R 2

have reported both categories of stored value cards 

are used as alternatives to smuggling physical cash.

Stored value card programs often accept applications 

online, via fax, or through local check cashing outlets, 

convenience stores, and other retailers. Programs that 

lack customer identification procedures and systems 

to monitor transactions for suspicious activity present 

significant money laundering vulnerabilities, particularly 

if there are liberal limits or no limits on the amount of 

cash that can be prepaid into the card account or accessed 

through ATMs. Offshore banks also offer stored value 

cards with cash access through ATMs internationally. 

Further, programs designed to facilitate cross-border 

remittance payments often allow multiple cards to be 

issued per account so that friends and family in the 

receiving country can use the cards to access cash and 

make purchases. These programs can also be used to 

launder money if effective AML policies, procedures, 

and controls are not in place.

Law enforcement agents on the El Dorado Task Force48 

in New York found they could use false identification to 

obtain prepaid cards and even have the cards sent to a 

U.S. Post Office box. Secret Service investigations have 

found that not only do some prepaid card applicants use 

false identification; they fund their initial deposits with 

stolen credit cards and money from other illicit sources.

DEA, ICE, and IRS-CI have all found prepaid cards used 

in conjunction with bulk cash smuggling. Drug dealers 

load cash onto prepaid cards and send the cards to their 

drug suppliers outside the country. The suppliers then 

use the cards to withdraw money from a local ATM.49 

Phone cards and other “closed” system prepaid cards 

also present opportunities for money laundering. The 

cards can be purchased for cash and transferred from 

one person to another domestically or internationally 

and eventually resold. Closed system cards are not 

currently subject to CMIR reporting when moved across 

U.S. borders.50 ICE sees the potential for a variation 

on the Black Market Peso Exchange (BMPE)51 with 

phone cards exchanged for drug money. Also, prepaid 

cards for wireless and long-distance service are a cashintensive business, offering an opportunity to integrate 

dirty money. Distributors of prepaid phone cards can 

generate more than $100 million in cash annually.

Regulation and Public Policy

A stored value card used in an ATM to access cash from 

a prepaid account operates the same way as a debit card 

accessing a bank account via ATM, but there can be a 

substantial difference in how the two cards are issued 

and the accounts managed. Banks and other depository 

financial institutions are obligated to have a customer 

identification program (CIP) and to report large or 

suspicious transactions (SARs). “Issuers, sellers, and 

redeemers of stored value” are classed as an MSB under 

the relevant regulations52 and are required to have an 

AML program but are not required to file SARs53 or to 

register with FinCEN.54 

Although open system stored value cards use the same 

payment networks as some bank-issued debit cards (e.g. 

Visa’s Plus and Interlink, and MasterCard’s Cirrus and 

Maestro), stored value cardholders generally are not 

48 Created in 1992 to target money laundering in New York, the El Dorado Task Force became one of the nation’s most successful money 

laundering task forces. It is led by ICE and includes representatives from 29 federal, state, and local agencies.

49Even prepaid cards for long distance and wireless services are proving to be money laundering tools as the wholesale distribution system for 

these cards is cash-intensive, offering cover for money laundering.

50A Report of International Transportation of Currency or Monetary Instruments (CMIR) must be filed by each person who physically 

transports, mails, or ships, or causes to be physically transported, mailed, or shipped currency or other monetary instruments in an aggregate 

amount exceeding $10,000 at one time from the United States to any place outside the United States or into the United States from any place 

outside the United States (FinCEN Form 105).

51The BMPE involves drug suppliers in Colombia working with a currency broker. Rather than bringing their illicit dollars from the U.S. back 

to Colombia, the drug suppliers turn the cash over to a currency broker who can provide pesos in Colombia. The broker keeps the dollars in 

the U.S., selling them to Colombian importers who need the foreign currency to purchase goods from U.S. suppliers. The importers pay for 

the foreign currency with the pesos in Colombia that ultimately go to the drug suppliers.

52 See 31 CFR. §103.11(uu)(3) and (4). 53 See 31 CFR. §§103.120 and 103.20(a)(5). 54 See 31 CFR §103.41(a)(1).
22

CHAPTER 2 MSB: STORED VALUE CARDS

M S B : S T O R E D V A L U E C A R D S — C H A P T E R 2 

obligated to have a bank account. A common model for 

stored value card programs is for a firm independent of 

the bank to process all cardholder transactions through 

a “pooled” bank account held in the name of the firm 

managing the card program. In this arrangement, the 

bank may have no direct contact with the individual 

cardholders. Under current regulations, when a stored 

value card firm uses a “pooled” account maintained in 

its name for cardholder transactions, banks are required 

only to conduct customer due diligence and customer 

identification procedures on the card management firm 

and not the individual cardholders.55 

MasterCard International and Visa USA have suggested 

AML guidelines for card issuers including account limits 

and requirements to verify identification. But web sites 

for stored value card programs that promote cardholder 

anonymity and flaunt a lack of AML policies suggest 

that this guidance may not be consistently enforced. 

Finally, a byproduct of the global market for and use 

of stored value products is that domestic action alone 

will not adequately address the vulnerability presented 

by these products. Issuers outside of the United States 

generally are not subject to the BSA,56 yet the cards they 

issue may be used in the United States. 

 

 

55 See Deposit Insurance Coverage; Stored Value Cards and Other Nontraditional Access Mechanisms, Notice Of Proposed Rulemaking 

Federal Register 70:151 (8 August 2005): 455710-45581.

56Bank Secrecy Act, Titles I and II of Pub. L. 91-508, as amended, codified at 12 U.S.C. § 1829b, 12 U.S.C. §§ 1951-1959, and 31 U.S.C. §§

5311-5332.
23

MSB: STORED VALUE CARDS CHAPTER 2

M S B : S T O R E D V A L U E C A R D S — C H A P T E R 2 Card Programs Characteristics Target Market Possible Issuer Benefit Potential Threat Examples prepaid phone Gift cards and services (Single service provider) Store- or brand-specific (No payment network branding) Cards often sold in pre-set denominations/Merchant collects full value up-front High frequency customers Float57sales , increased BMPE-style ML58: exchanging cash for cards/Use as alternative currency/Distribution method is cash intensive creating ML threat Phone service cards Retailer-specific and Gift cards: Multiple Merchants can be used for purchases Multi-merchant gift card: only (no ATM)/Can be payment network branded Gift givers Float, sales, and transaction fees59 through bulk card Money laundering acquisition and resale Mall card Payroll cards Creates account to facilitate direct deposit/ Cards can be used at ATM & POS60 who are being paid Unbanked workers by cash or check cost to employer) Fee income (lower Fraudulent businesses could use to pay terrorists or launder money Various

Remittance cards

Cards are issued for 

cross-border ATM & POS

friends & family to use at 

Individuals who 

send cross-border 

remittances

Fee income

Provides anonymous 

funds for purchases or 

cross-border access to 

cash

Various 

General use cash 

cards POS to access pre-funded 

Debit card good at ATM & 

account qualify for credit 

& those unable to 

Unbanked, teens, 

card

Fee income

Provides anonymous 

funds for purchases or 

cross-border access to 

cash

Various 

Function-specific 

cards tickets, and forms for a 

Replaces paper money, 

variety of functions

government 

Businesses & 

agencies processing 

cash, checks or 

high volume of 

vouchers

processing

Lower cost None apparent Transit systems/ Health savings accounts/

Govt. benefit programs

57Merchant earns interest on idle card funds.58Black Market Peso Exchange-type money laundering.59 Purchases with bank cards generate transaction fees for the issuing bank.60 Point-of-sale.

Table 7

25

ONLINE PAYMENT SYSTEMS CHAPTER 3

O N L I N E P A Y M E N T S Y S T E M S — C H A P T E R 3

Chapter 

Onli

S

New and innovative online payment services are 

emerging globally in response to market demand 

from individuals and online merchants. Individuals, some of whom may not have a bank account or are 

unable to qualify for a credit card, are looking to online 

payment services to enable online shopping, electronic 

bill payment, and person-to-person funds transfers. And 

some online merchants are demonstrating a willingness 

to accept new electronic methods of payment that are 

less expensive than credit cards. These payment services function as online payment systems, accepting funds 

in a variety of ways for the purpose of transferring payment either to a merchant or an individual. 

Individuals wanting to shop online or participate in an 

online auction can use an existing bank account, credit 

card, wire transfer, money order, and even cash to fund 

an account with an online intermediary that will facilitate the payment. Some online payment services exist to 

facilitate transactions for online gambling and adult content sites that U.S.-based money transmitters typically 

will not service.61 U.S. citizens can access payment services online that are based outside of the United States 

and transfer funds either electronically or by mail.

Online merchants, particularly those in sectors with high 

“chargeback” rates, are generating demand for new payment methods.62 These markets embrace online payment 

systems that set their own clearing and settlement terms 

absent any consumer protection or financial regulation. 

Typically, transactions through these service providers 

are considered final with no recourse for individuals who 

believe they have been defrauded. The consequence, 

according to federal law enforcement agencies, is that 

these systems have become favorite payment mechanisms for online perpetrators of fraudulent investment 

schemes and other illegal activity.

Some online payment services defy conventional business models. “Digital currency” dealers, for example, 

use precious metals (gold, palladium, platinum, and silver) as the store of value for online transactions and split 

the transaction process between two business entities: 

the digital currency exchange service and the digital currency dealer. Despite the appropriation of the term “digital currency” to describe the use of precious metals for 

online payments, digital currency remains one of many 

common phrases with “digital,” or “cyber” or “e–,” used 

to refer to any electronic payment initiated online.63 

The systems work as follows: A person wanting to use 

gold for an online purchase would first open a gold account with a digital currency dealer and then fund the 

account through an exchange service. Each exchange 

service sets its own terms, so that while some may only 

accept transfers from bank or credit card accounts, others will accept cash and money orders.64 Similarly, each 

exchange service offers different options for receiving 

funds. The result is that some service providers pose a 

greater risk for money laundering. 

The oldest and best known of the digital currency services is e-gold Ltd., licensed in Nevis, with almost 2 

61 In 2002, PayPal, perhaps the largest and best-known online payment system (339.9 million payments worth $18.9 billion in 2004), stopped 

providing payment services for online gambling and adult content sites. PayPal, was launched in 1998, and today has 63 million member 

accounts in 45 countries. In addition to facilitating transactions for sites PayPal no longer services, emerging online payment systems also are 

targeting countries in which PayPal does not operate. PayPal is a division of e-Bay, a publicly-held, U.S.-based corporation, and is licensed in 

the jurisdictions where it permits customers to send and/or receive money. (Source: http://www.paypal.com) PayPal has also registered with 

FinCEN as an MSB.

62When a customer using a credit card disputes a charge, the customer is said to “charge back” the transaction. Managing charge backs is 

costly to merchants who can be fined by their bank for frequent disputes or required to pay higher transaction fees. Online gambling and adult 

content web sites are among industries prone to chargebacks and are charged higher credit card fees than brick and mortar businesses. 

63The use of the term “currency” in this context is not strictly correct. Currency is something monetized by a monetizing authority, generally 

central banks. Rather than being used as currency, these precious metals are used as a part of a barter exchange (one party agrees to exchange 

a quantity of gold for various goods or services).

64 In addition to other funding options, a California-based digital currency exchanger accepts cash delivered by courier. Another service 

provider based in Panama also accepts cash, but advises: “We have a limit of $2,500.99 per day, per bank for cash deposits. For bigger 

amounts please send wires or postal money orders.”
26

CHAPTER 3 ONLINE PAYMENT SYSTEMS

O N L I N E P A Y M E N T S Y S T E M S — C H A P T E R 3 

million accounts.65 E-gold indicates on its web site 

that its metal holdings provide a form of guarantee that 

should convey trustworthiness66 – a feature often lacking among unregulated online payment services. Digital 

currency dealers also promote the global acceptance of 

precious metals, observing that a buyer paying with gold 

need not worry about access to or acceptance of underlying currencies. Merchants, online service providers, and 

individuals who are willing to receive payment in precious metals are allocated a quantity based on the day’s 

market price. While taking delivery of the actual metal 

is an option, recipients can also sell the metal through a 

digital currency “exchanger” and receive payment in a 

more conventional form. 

The Global Digital Currency Association (GDCA) is 

a trade association of digital currency dealers and exchangers pressing for self-regulation. The GDCA provides a public ranking of its membership and offers 

arbitration procedures.67 However, the GDCA constitution makes no mention of AML policies and procedures 

or of adhering to international AML recommendations 

such as those promulgated by the Financial Action Task 

Force (FATF).68 The GDCA manages member conduct 

through its “reputation ranking system,” which allocates 

or subtracts points based on length of membership and 

dispute and dispute record. (See Figure 1)

Vulnerabilities

Online payment services function as international person-to-person payment systems. By crossing jurisdictional lines these services potentially create difficulties 

for authorities pursuing enforcement or legal actions. 

Although individuals may use credit cards, wire transfers, or other bank payment tools to move funds to online payment systems, the investigative trail for law 

enforcement ends there when service providers do not 

have effective customer identification or recordkeeping 

practices. In addition, the trail is further shortened when 

service providers accept cash and money orders to fund 

accounts.

U.S. federal law enforcement agencies have found that 

some online payment services are ill-equipped to verify customer identification69 and some openly promote 

anonymous payments. The type of personal information required for opening an account with a digital 

currency dealer or exchanger or online payment system varies by service provider. 

The FBI reports six individuals indicted in a Ponzi 

scheme in March 2004 used a digital currency exchange service to transfer some $50 million from 

26,000 investors. The FBI Crime Complaint Center 

has received a number of complaints regarding Internet auction fraud, investment schemes, and computer 

intrusions all involving digital currency services.

U.S. federal law enforcement agencies currently are 

investigating a credit and debit card fraud ring that 

uses stolen account information to make unauthorGDCA Membership Ranking Ke

(excerpted from the GDCA Constitution)*

Membership Awards:

• Silver - Awarded to members known to be reputable and 

trustworthy

• Gold - Awarded to members known to be trustworthy, without 

any reported or reputed valid customer complaints over a one 

year period

• Platinum - Rarely awarded, and when, then only to 

outstanding members who are well known, have shown to 

be beyond reproach and who head outstandingly upright 

operations, pillars of the industry

• Palladium - Awarded to long-serving Committee members 

and officers of the GDCA who qualify for Platinum awards.

Points may be earned or lost [at the discretion of the GDCA].

* Accessed at: http://www.gdcaonline.org.

Figure 1

65E-Dinar is a spin-off of e-gold, and is affiliated with the Islamic Mint, a private organization dedicated to reviving the gold and silver currencies 

described in the Koran, the gold dinar and silver dirham. The target market for the e-Dinar is the more than one billion Muslims directed by the 

Koran to pay “zakat” or 2.5% of one’s net worth annually to be distributed to the needy and the poor. Accessed at: http://www.e-dinar.com. 66Accessed at: http://www.e-gold.com. 67 Accessed at: http://www.gdcaonline.org/. 68 FATF Standards. Accessed at: http://www.fatf-gafi.org/pages/0,2966,en_32250379_32236920_1_1_1_1_1,00.html. 69Money services businesses are not required under the BSA to have customer identification programs. They are required to have programs in 

place to perform necessary customer due diligence appropriate to the risks presented, and to comply with all recordkeeping and reporting

requirements under the BSA.
27

ONLINE PAYMENT SYSTEMS CHAPTER 3

O N L I N E P A Y M E N T S Y S T E M S — C H A P T E R 3

ized withdrawals. The illicit funds are then laundered 

through digital currency accounts and through open system prepaid cards. Funds transferred to digital currency 

accounts can be sent via money transmitters globally. 

Similarly, funds transferred to prepaid card accounts can 

be accessed via ATMs globally. 

Regulation and Public Policy 

In the United States, money transmitters are among 

MSBs required to register with FinCEN,70 are subject 

to AML reporting and recordkeeping requirements,71

and are often required to be licensed on the state 

level. Whether an online payment system or digital 

currency service meets the definition of a money transmitter pursuant to BSA regulations, though, depends upon 

its location and the ways in which it participates in or 

conducts transactions.72 Many online payment systems 

are based outside the United States and are not subject 

to U.S. jurisdiction. Some online payment systems 

may be licensed in one country and maintain operations 

(including staff, computer systems, and customers) in 

various other countries without a physical retail presence 

anywhere. Determining which legal entity has jurisdiction for regulatory and enforcement purposes can be 

challenging.73 Potential users around the world now are 

finding they can go online to access payment options 

that may be unavailable from a domestically-regulated 

service provider.

Unregulated online payment systems do not have consistent or reliable AML policies and procedures. Opportunities for domestic regulation and enforcement are 

limited by jurisdictional issues. Without international 

coordination to encourage unregulated online payment 

systems to adopt and adhere to FATF AML policies and 

procedures, any single jurisdiction acting alone may 

have only limited success in this regard. 

 

70 31 CFR § 103.41.

71 31 CFR §§ 103.125 and 103.20.

72 31 CFR § 103.11(uu) states: “Money services business. Each agent, agency, branch, or office within the United States of any person doing 

business, whether or not on a regular basis or as an organized business concern, in one or more of the capacities listed in paragraphs (uu)(1) 

through (uu)(6) of this section.” 31 CFR § 103.11(uu) (5) states: “Money transmitter--(i) In general. Money transmitter: (A)Any person

whether or not licensed or required to be licensed, who engages as a business in accepting currency, or funds denominated in currency, and 

transmits the currency or funds, or the value of the currency or funds, by any means through a financial agency or institution, a Federal 

Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both, or an 

electronic funds transfer network; or (B)Any other person engaged as a business in the transfer of funds.” 73Most jurisdictions, including the U.S., have not established a licensing or regulatory framework for online payment systems with no physica

presence in the jurisdiction. An exception is the U.K. where online payment systems come under the umbrella term “electronic money issuers” 

and are subject to the Financial Services and Markets Act 2000. See Financial Services Authority, The Regulation of Electronic Money Issuers.

Accessed at: http://www.fsa.gov.uk/pubs/cp/cp117.pdf.

29

INFORMAL VALUE TRANSFER SYSTEMS CHAPTER 4

I N F O R M A L V A L U E T R A N S F E R S Y S T E M S — C H A P T E R 4

Chapter 

Inf

Tran

Informal Value Transfer Systems (IVTS)74 are efficient remittance systems based on trust that operate primarily within ethnic communities. IVTS include 

various centuries-old remittance systems centered in 

ethnic/national communities, the most utilized of which 

are Hawala/Hundi (South Asia),75 Fei ch’ien (China), 

Phoe Kuan (Thailand), and Door to Door (Philippines). 

Although these systems primarily service legitimate 

customers and purposes, criminal elements exploit IVTS 

to launder/transfer proceeds because of their lack of 

transparency and low costs. Indeed, these systems have 

historically proven themselves to be among the safest 

methods to transfer mone without visibility. IVTS provide transfers to and from areas where modern financial 

services are unavailable, inaccessible, unaffordable, or 

localities where corruption within the financial system 

is prevalent. The system provides rapid funds transfers 

(usually within hours of the transaction’s initiation), under a safeguard of trust and reliability. 

IVTS can be operated from virtually any location with 

access to a communication network such as e-mail, fax, 

or telephone. IVTS has been observed in convenience 

stores and gas stations, souvenir shops, ethnic barber 

shops, and restaurants, as well as private residences.

The following fact pattern lays out a typical IVTS transaction:

In country A, a client hands over a sum of money 

to an IVTS broker and requests that the equivalent 

amount (usually in the currency of the receiving 

country) be sent to a designated recipient in country B. The sending broker relays all the necessary 

74 IVTS are often referred to as Alternative Remittance Systems (ARS) in the international sector. ARS are operated by entities (alternative 

remittance operators) for moving money or other forms of stored value between countries on behalf of customers who do not wish to directly 

use the “formal” banking system. See Asia Pacific Group-Alternative Remittance Regulation Implementation Package (July 2003). 75Although listed separately, in many countries users of hawala and hundi often use the terms interchangeably to describe the hawala transfer 

process. Hawala, meaning transfer in Arabic, is a remittance vehicle. Hundi, meaning collect, began centuries ago as a form of IOU, bill of 

exchange, and remittance vehicle. Currently, various countries misuse the term hundi to describe the hawala transfer process.

BASIC HAWALA

MARWAN

USA

AMJAD

PAKISTAN

HAWALADAR

IN USA

HAWALADAR

IN PAKISTAN

Illustration of a basic IVTS process

Illustration 2

information concerning the transaction to a counterpart broker in country B either through telephone, 

facsimile, or email. At this stage of the process, a 

“collection code” is agreed upon between the two 

brokers. The broker in country A will then communicate this code to the client, who, in turn, will 

relay it to the designated recipient in country B. 

The broker in country B will give the money to the 

recipient upon presentation of the collection code. 

If the sending client is also the recipient, he would 

have to present the code to the counterpart broker, 

upon arriving in country B before the money could 

be released to him. In many cases, the payment 

will be made by the counterpart broker to the designated recipient within hours after the request to 

remit money was placed by the client in country A. 

The income of the broker from the transaction may 

come from charging a commission ranging from 

0.25% to 1.25% of the amount involved or from 

disparities in currency exchange rates. 

It is virtually impossible to ascertain the full extent of 

IVTS activity in the United States due to the opacity of 

the sector and the absence of registration by most IVTS 
30

CHAPTER 4 INFORMAL VALUE TRANSFER SYSTEMS 

I N F O R M A L V A L U E T R A N S F E R S Y S T E M S — C H A P T E R 4 

operators. SAR information and law enforcement observations offer some clues, however, to the functioning 

of this sector. 

Bank Secrecy Act Data

SAR data currently provide the best means of identifying IVTS trends. A review of SAR activity for the 

period March 2003-October 2004 identified 174 SARs 

indicating IVTS activity. The primary geographic locations in which IVTS appeared are Texas (14.4%), Illinois (12.1%), Minnesota (6.32%), Arizona (5.75%), 

Georgia (5.75%), and Michigan (5.75%). The subjects 

of these violations were identified as operating cashintensive businesses for the purpose of commingling 

proceeds from the IVTS with their legitimate business 

earnings. Typical businesses associated with suspicious 

IVTS activity included gas/convenience markets, restaurants/lounges/liquor stores, video stores, and clothing 

or jewelry stores. 

Suspicious transactions indicating IVTS activity included the following techniques:

 Multiple deposits of combinations of cash, money 

orders, or third-party checks;

Multiple deposits of combinations of cash, money 

orders, or third-party checks made to the same 

account from different states;

Daily deposits;

Multiple structured deposits; and,

Multiple incoming wire transfers followed by any 

of the activities listed below:

Outgoing wire transfers, either domestic or 

international;

Outgoing transfers via Automated Clearing 

House debits to known MSBs;

Checks written to cash by the accountholder;

Checks written to or endorsed by known 

MSBs; or

ATM cash withdrawals in remote locations, 

including other countries.

•

•

•

•

•

1.

2.

3.

4.

5.

Additional indicators useful for law enforcement in 

identifying an IVTS operation include:

Structured deposits followed by wire transfers to 

unrelated businesses in Southeast/Southwest Asia; 

Multiple financial ledgers (one for legitimate 

transfers, one for criminal activity, possibly an 

additional ledger for settling accounts between 

brokers);

A high volume of mail and packages from out of 

state that contain various monetary instruments 

such as checks or money orders;

Short telephone calls coming into the broker 

(instructions from the customer sending funds);

Numerous lengthy telephone calls made to overseas 

recipients (indicates the broker is coordinating with 

counterparts and placing orders); and

Fax transmittal logs. Faxes sent may be a rollup of the day’s transactions or may be single 

transactions. Faxes may contain the name of a 

sender (not necessarily a real name), beneficiary, 

or code used by the receiving broker to identify the 

beneficiary. 

Law Enforcement Data

Law enforcement agencies encountered common patterns in their IVTS investigations, reporting concentrations of IVTS activity among Middle Eastern communities, as well as Somali, Yemeni, Pakistani, Afghani, 

Filipino, Indonesian, Chinese, African, Indian, and Latino communities. Transfers by these communities are primarily directed at areas with non-existent, unaffordable, 

or untrustworthy financial institutions. Consistent with 

the BSA data, law enforcement agencies observed IVTS 

operations utilizing cash-intensive businesses (e.g., convenience stores/gas stations) to commingle funds. 

In addition to the inherent difficulties in penetrating IVTS 

networks and proving the elements of an 18 U.S.C. § 

1960 case, law enforcement has faced difficulties due to 

the relative novelty of the statute and monetary threshold 

issues imposed by the United States Attorney Offices. 

Despite these factors, law enforcement has had some in-

•

•

•

•

•

•
31

INFORMAL VALUE TRANSFER SYSTEMS CHAPTER 4

I N F O R M A L V A L U E T R A N S F E R S Y S T E M S — C H A P T E R 4

Case Example 

1

Law Enforcement Challeng

Bank records seized pursuant to search warrants revealed 

that the subject, using a personal account and his business (a convenience store) account, sent checks totaling 

approximately $300,000 to various individuals in Yemen 

during the years 1998 - 2002. Cash deposits were made 

simultaneous to the writing of the checks, and slightly 

exceeded the amounts of the checks (indicative of a fee 

being charged). The checks sent were subsequently negotiated at various banks in Yemen. The tracking of the flow 

of funds stopped there.

The subject, during his interview, stated he knew what a 

hawala was and the types of fees associated with its operation. However, he insisted that he was not operating one, 

and that he was simply sending money to support family members in his native Yemen. No lists or records of 

clients were ever uncovered; investigators were unable to 

corroborate any testimony because the primary witnesses 

were in Yemen; and no one in the local Yemeni community was able to state that the subject and/or others were 

operating hawalas. Because of the lack of corroboration, 

the 18 USC § 1960 part of the case was discontinued and 

the subject was indicted on other charges.

This investigation was initiated as a result of the former 

Customs Service’s Operation Green Quest.

 

creasing success in prosecuting unlicensed and criminal 

IVTS operators. Since the enactment of § 1960, ICE 

has initiated more than 260 IVTS investigations and executed more than 100 search warrants in connection with 

these cases. During this period, ICE investigations into 

unlicensed MSBs have resulted in roughly 120 arrests, 

130 indictments, and the seizure of some $23 million. 

A former Customs Service case illustrates the difficulties in building IVTS cases. (See Case Example 2) 

Vulnerabilities

IVTS offer several business advantages over formal remitters76 such as Western Union and MoneyGram, including the following:

A formal remitter will charge the sender 

approximately 10-20% of the total amount 

transferred whereas an IVTS will typically charge 

0.25%-1.5%, if any commission at all;

Formal remitters provide service to larger 

population centers while IVTS provide service to 

the same, as well as remote areas of the world;

Transfers initiated by formal remittance agencies 

typically take days or weeks, whereas IVTS 

transactions are conducted within hours with athome pick-up and delivery services; and

Recipients must present identification when 

receiving transfers at a formal agency, whereas 

IVTS only require an anonymous code for receipt 

of funds. 

All of these factors make IVTS attractive to lawful individuals as well as money launderers.77 In addition, 

money launderers are drawn to IVTS for the unparalleled confidentiality that they offer, allowing them to 

conduct transactions in near anonymity. IVTS records 

are typically spotty and omit all but the most perfunctory 

customer identification information. Ledgers may be 

kept in foreign languages or in initials and codes and are 

difficult to decipher without cooperation of the remitter. 

Records may also be destroyed within a short period of 

time after their creation. 

Even where records exist and are comprehensible, IVTS 

transactions may be routed through third party accounts 

of individuals or companies. Law enforcement investigations of IVTS have encountered nominee accounts, 

sometimes referred to as “benami,”78 which effectively 

•

•

•

•

76 IVTS are informal remittance systems, as they exist and operate outside of (or parallel to) conventional regulated banking and financial 

channels; often referred to as the formal financial sector.

77 See also FinCEN Advisory Issue 33. Acccessed at: http://www.fincen.gov/advis33.pdf. 78“Benami” or nominee accounts are culturally accepted in ethnic groups that also engage in hawala. Because the true beneficiary of a 

transaction is not the person under whose name the transaction takes place, it is very hard to identify the owners of criminal proceeds and 

people who engage in illegal activities. 
32

CHAPTER 4 INFORMAL VALUE TRANSFER SYSTEMS 

I N F O R M A L V A L U E T R A N S F E R S Y S T E M S — C H A P T E R 4 

stop the money trail. Law enforcement agents are also 

faced with language and cultural barriers when trying 

to communicate with suspects and conduct undercover 

operations. 

The informal nature of IVTS allows them to disguise 

illicit transactions among the proceeds from cash intensive businesses. Businesses operating with substantial 

amounts of cash or involving high turnover make it very 

easy to hide illegal IVTS transactions by creating “black 

holes”: pooling cash among IVTS providers, depositing 

it at different financial institutions at different times, and/

or using the funds to purchase commodities that then can 

be traded in the United States or internationally. This 

process makes matching cash withdrawals or deposits 

with individual transactions virtually impossible.

Finally, the unconventional settlement between IVTS 

operators often presents challenges for regulators and 

law enforcement. The settlement of payments is often 

unrelated in time to the actual transactions. This makes 

“following the money trail” much more difficult than 

traditional financial transactions. This is especially true 

for IVTS operators who operate in the United States and 

send funds on behalf of their customers to family and 

friends located in countries abroad. This continued flow 

of activity creates a surplus of funds collected by IVTS 

operators in the United States, while depleting the funds 

available from “cash pools” available to IVTS operators 

located in countries abroad who pay out funds to the 

beneficiaries. Settlement payments must eventually be 

made between the IVTS operators in order to reconcile 

existing cash pools that are essential for sustaining IVTS 

operations in addition to returning a profit for IVTS operators. 

The settlement process is executed by IVTS operators 

utilizing numerous methods that are only limited to what 

is available within a respective economy. Methods of 

settling debt may include the physical transport of money, transferring funds or sending checks via traditional 

banks, over- and under- invoicing schemes, and countless other methods. A number of recent law enforcement cases suggest that the use of financial institutions 

is a prevalent method used by IVTS operators located in 

the United States to remit settlement payments to other 

IVTS operators located abroad.

Regulation and Public Policy

FinCEN has issued regulations requiring IVTS to register with FinCEN, effective as of December 2001. Failure to register is a violation of 18 U.S.C. § 196079 and 

31 U.S.C § 5322.80 IVTS do not have to identify themselves as an IVTS; however, if they function as a money 

transmitter they must provide FinCEN with contact and 

identification information and file reports on transactions over $3,000, cash and coin received amounting to 

$10,000 or more, and prescribed suspicious transactions. 

As with all MSBs, registering these businesses has been 

a slow and challenging process, particularly in the case 

of small businesses that offer IVTS services as a sideline 

to their primary function. 

In the aftermath of the September 11 attacks, IVTS 

have become the subject of heightened regulatory focus 

around the world.81 

79 See 18 U.S.C. § 1960 (“Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money 

transmitting business, shall be fined in accordance with this title or imprisoned not more than five years, or both.”).

80 See generally “FinCEN Report to Congress in accordance with Section 359 of the USA PATRIOT Act.” Accessed at: http://www.fincen.gov/

hawalarptfinal11222002.pdf. 81The FATF SR VI Interpretative Note underscores the need to bring all money or value transfer services, whether formal or informal, within 

the ambit of certain minimum legal and regulatory requirements in accordance with the relevant FATF recommendations. FATF, Interpretative

Note to Special Recommendation VI: Alternative Remittance. Accessed at: http://www.fatf-gafi.org/dataoecd/53/34/34262291.pdf.
33

BULK CASH SMUGGLING CHAPTER 5

B U L K C A S H S M U G G L I N G — C H A P T E R 5

Chapter 

Bulk C

Federal law enforcement agencies believe bulk 

cash smuggling may be on the rise due in part 

to increasingly effective AML policies and procedures at U.S. financial institutions. The increased 

transparency associated with transferring funds through 

U.S. banks and MSBs is apparently a factor in money 

launderers moving illicit funds out of the country to jurisdictions with lax or complicit financial institutions or 

to fund criminal enterprises. Smugglers conceal cash in 

vehicles, commercial shipments, express packages, luggage, and on private aircraft or boats. Law enforcement 

is aware of the problem, but has concentrated resources 

on screening inbound, rather than outbound, passengers 

and cargo in this era of heightened caution about terrorism. 

Cash associated with illicit narcotics typically flows out 

of the United States across the southwest border into 

Mexico, retracing the route that illegal drugs follow 

when entering the United States.82 Upon leaving the 

country, cash may stay in Mexico, continue on to a number of other countries, or make a U-turn and head back 

into the United States as a deposit by a bank or casa de 

cambio. Illicit funds leaving the United States also flow 

into Canada, which, like Mexico, is a source of illegal 

narcotics. The extent to which cash smuggled out of the 

United States is derived from criminal activity other than 

the sale of illegal drugs is not known. Other cash-intensive sources of illicit income include alien smuggling, 

bribery, contraband smuggling, extortion, fraud, illegal 

gambling, kidnapping, prostitution, and tax evasion. 

One source of data on currency seizures is the El Paso 

Intelligence Center (EPIC), which was established in 

1974 to assist federal, state, and local law enforcement 

regarding the movement of illegal drugs and immigration violations on the southwest border. EPIC has three 

databases, categorized by mode of transport, that track 

currency seizure information submitted by participating 

law enforcement agencies:

Operation Pipeline records seizures made from

private cars and trucks;

Operation Convoy records highway seizures 

involving commercial vehicles; and

Operation Jetway records seizures from airports, 

train and bus stations, package shipment facilities 

(i.e. FedEx and UPS), United States Post Offices, 

and airport hotels and motels. 

EPIC seizure data from 2001 through 2003 indicates 

seized currency was most often coming from California, 

Illinois, New York, and Texas (see Table 8) and was 

heading to Arizona, California, Florida, and Texas (see 

Table 9). There is no way to know what proportion of 

the seized funds was generated through drug trafficking; 

however, law enforcement believes much, if not most, 

of the seized cash does represent drug proceeds.83 

U.S. Immigration and Customs Enforcement (ICE) 

plays a key role in investigating bulk cash seizures made 

by Customs and Border Protection (CBP) and state and 

local law enforcement. CBP and ICE seizure and arrest 

data is captured in the Treasury Enforcement Communications System II (TECS II). TECS II is one of world’s 

•

•

•

82Mexican criminal groups exert more influence over drug trafficking in the U.S. than any other group, accounting for most of the cocaine, and 

much of the heroin, marijuana, and methamphetamine available in U.S. drug markets (Source: National Drug Intelligence Center, National 

Drug Threat Assessment, 2005).

83 National Drug Threat Assessment 2005, National Drug Intelligence Center. Accessed at: http://www.usdoj.gov/ndic/pubs11/12620/money.

htm#Top.

Case Example 

1 Bulk Cash Smuggling to Canad

The cycle of illegal drugs coming into the U.S. and illicit proceeds 

flowing out is not limited to the southwest border. Operation Candy Box, 

concluded in March 2004, illustrates the global scope of drug supply into 

the U.S. and corresponding destinations for illicit proceeds. Operation 

Candy Box was a three-year Drug Enforcement Administration and 

ICE investigation that targeted a Vietnamese MDMA1 and marijuana 

distribution organization operating in the U.S. and Canada. MDMA 

powder was imported from the Netherlands and formed into tablets in 

clandestine labs in Canada. Approximately $5 million a month in drug 

proceeds was laundered in Canada coming in from the U.S. as bulk cash or 

laundered through a network of Vietnamese-owned money remitters and 

travel agencies.2 It is interesting to note that the defendant charged with 

money laundering received a stiffer sentence than the defendants charged 

with narcotics violations.

1

MDMA (3-4 methylenedioxymethamphetamine) is a synthetic, psychoactive drug chemically similar to the stimulant methamphetamine and the hallucinogen mescaline. Street names 

include Ecstasy, Adam, XTC, hug, beans, and love drug. 

2

International Narcotics Control Strategy Report, March 2005; http://www.state.gov/p/inl/

rls/nrcrpt/2005/vol1/html/42361.htm.
34

CHAPTER 5 BULK CASH SMUGGLING

B U L K C A S H S M U G G L I N G — C H A P T E R 5 

largest databases containing over a decade of data relating to domestic and international financial crimes.84

From 2001 through February 2005 ICE agents arrested 

more than 260 individuals for bulk cash smuggling violations. Approximately 20% of the arrests resulted from 

seizures not at a border or port of entry but in the interior 

of the United States. In addition, ICE and CBP have 

seized a combined total of more than $107 million in 

cases where bulk cash smuggling was charged. 

Bulk cash once it crosses the southwest border can take 

a number of routes, including: 

Individuals depositing the cash into Mexican banks 

or casas de cambio and then wiring it back into the 

United States; 

Complicit Mexican financial institutions 

repatriating the cash to the United States via cash 

couriers or armored cars, depositing the funds into 

correspondent accounts; 

Smugglers moving the money on to Venezuela, 

•

•

•

Panama, Costa Rica, or other Latin American 

countries where it can be used to pay for goods 

– both legitimate and illicit – for the black market 

in Colombia; and, 

Individuals moving the funds to offshore 

jurisdictions with heightened bank secrecy 

protections.

SARs filed by U.S. financial institutions tend to support 

the view that some of the cash smuggled out of the United States to Mexico is immediately repatriated. SARs 

have reported patterns of large wire transactions ($1.5 

million or more per transaction) to U.S. payees from 

Mexican money exchange houses and other financial institutions. This was reported in the first SAR Activity 

Review in October 2000, providing an early indication 

that Mexican criminal groups had raised their profile in 

drug trafficking in the United States, which correspondingly indicated an increased threat of money laundering 

activity linked to Mexico. 

The ICE attaché in Mexico City, in coordination with 

Mexican authorities, is conducting investigations into 

the smuggling of bulk cash from the United States into 

Mexico and onward to Central and South America. 

Three separate outbound operations conducted at Benito 

Juarez International Airport in Mexico City resulted in 

the seizure of over $21 million and the arrest of over 50 

individuals. 

Vulnerabilities

Cash can be smuggled out of the United States through 

the 317 official land, sea, and air ports of entry (POE), 

and any number of unofficial routes out of the country 

along the Canadian and Mexican borders. The United 

States shares a 3,987 mile border with Canada and a 

1,933 mile border with Mexico. 

 

The northern border recorded 77 million individual 

crossings and 37 million vehicle crossings in 2004. In 

addition to individuals carrying cash out of the country or hiding it in vehicles, any of the Canada-bound 

•

84 These include violations of 31 USC § 5316 (failure to file a report of international transportation of currency or monetary instruments), 31 

USC § 5332 (bulk cash smuggling), 18 USC § 1956 (laundering of monetary instruments) and 18 USC § 1957 (money laundering in property 

derived from specified unlawful activity).

Case Example 

1 Smugglers’ Route: U.S. Interstate 

Illicit proceeds destined for Mexico often are transported through 

Texas on U.S. Interstate 59, which extends from the US/Mexican 

border at Laredo to Houston and then north to other markets 

throughout the Midwest. Currently, a portion of U.S. Interstate 

59 is slated to become part of U.S. Interstate 69. The proposed 

new highway will create a direct corridor between the U.S.-

Mexico border and the U.S.-Canada border. On February 8, 2005, 

Texas Department of Public Safety (DPS) troopers seized $2.3 

million following a vehicle stop along U.S. Interstate 59 north 

of Nacogdoches. A Texas DPS trooper stopped the driver of a 

southbound tractor-trailer for a speeding violation. The driver, who 

was hauling boxes of frozen chicken, appeared to be nervous; his 

driver’s log indicated that this was his first trip for the company. 

A search of the vehicle revealed a hidden compartment in the 

refrigerated trailer, and an inspection of the compartment uncovered 

the currency. DPS officers confiscated the currency, and the driver 

was arrested on state money laundering charges. This was the fourth 

largest traffic stop seizure of currency in Texas DPS history1.

1

 Narcotics Digest Weekly, National Drug Intelligence Center; Volume 4, Number 10, 

March 8, 2005, Product No. 2005-R0485-010. 
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BULK CASH SMUGGLING CHAPTER 5

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shipping containers involved in commercial trade could 

contain illicit cash. Canada is the largest U.S. trading 

partner with $446 billion in merchandise trade last year. 

Canada is also a major source of marijuana — “B.C. 

Bud” or British Colombian and other hydroponic highpotency marijuana which commands a selling price of 

nearly ten times that of Mexican marijuana.

The southern border has five times more traffic than the 

northern border. There are 35 official ports of entry on 

the U.S. border with Mexico and some 1 million individuals cross over daily.85 Mexico ranks right behind 

Canada as a U.S. trading partner with $267 billion in 

merchandise trade last year, creating ample opportunity 

to smuggle cash out of the country in shipping containers.

A significant amount of cash can be moved relatively easily, despite the bulk. Each note of U.S. currency weighs 

approximately one gram and 454 grams make a pound. 

Each bill is .0043 inches thick. One million dollars in 

$20 bills would be six stacks of bills each three feet high 

with a total weight of a little over 100 pounds.86 Most 

airlines have a carry-on weight limit of 40 pounds and a 

checked baggage limit of 70 pounds. Because of both its 

bulk and its weight, the challenge in moving bulk cash is 

either to use large containers (e.g., commercial shipping 

containers or specialized compartments in vehicles) or 

split it up among many couriers. Using many couriers 

has the added advantage of mitigating the risk of loss 

should one or more couriers be stopped. 

Transporting cash out of the U.S. is so commonplace 

that many criminals do not take any elaborate measures 

to conceal the currency. (See Table 10) In FY2002 and 

FY2003, CBP seized almost a quarter of a billion dollars 

that they characterized as being “unconcealed.” When 

cash is concealed, the methods can be ingenious including false compartments in vehicles and luggage, special 

garments designed to hold currency that are worn under 

clothing, and cash packaged and wrapped to look like 

gifts.

Bulk cash smugglers are well aware of law enforcement’s 

resource constraints at the border and usually cross at 

busy sites, carefully timing and coordinating crossings. 

Despite the relative ease of smuggling cash across official border crossing points, there is ample evidence 

drug, currency, and alien smugglers use other routes as 

well. Evidence from the apprehension of illegal aliens 

emphasizes how porous the U.S./Mexican border can 

be: “U.S. officials made 1.1 million apprehensions along 

the southern border last year, a 24% increase over the 

year before. It is unclear whether the rising apprehensions signify that more people are trying to cross or that 

a greater percentage are being caught. But experts in 

both countries estimate that perhaps 500,000 or more 

still make it through each year.”87

In addition to overland routes between the United States 

and Mexico, smugglers also use tunnels. From 1990 

through March 1, 2005, law enforcement officials discovered 33 tunnels along the U.S.-Mexican border, 21 

of which were discovered in Arizona. Nineteen extended from various locations in Nogales, Mexico, to the 

adjacent city of Nogales, Arizona. Many of the tunnels 

were located near ports of entry at the border and consisted of passageways linked to storm/sewer drains with 

entrances concealed in residences or businesses. Two 

tunnels discovered in Nogales, Arizona had entrances 

hidden inside churches.88

Bulk cash smugglers have an unlimited number of options available to move cash by land, sea, and air out 

of the United States, but law enforcement resources are 

limited. As of Oct. 2004, CBP had only 17 currency detector dogs assigned to 14 ports of entry to assist in interdiction efforts.89 CBP’s Canine Enforcement Program 

was responsible for seizures of U.S. currency worth 

$27.9 million in FY2003. However, CBP’s mission extends far beyond interdicting currency smuggling. On 

the average day, CBP examines 1.3 million arriving pas85 Fisk, Daniel W., Deputy Assistant Secretary State for Western Hemisphere Affairs, Statement Before the Senate Committee on Foreign 

Relations, April 6, 2005.

86Bureau of Engraving and Printing. Accessed at: http://www.moneyfactory.com/section.cfm/19. 87 Sullivan, Kevin, “An Often Crossed Line in the Sand,” The Washington Post, March 7, 2005, p.1.

88 Narcotics Digest Weekly, National Drug Intelligence Center; Volume 4, Number 14, April 5, 2005, Product No. 2005- R0485-014. 

89Weiss, Martin A., Terrorist Financing: Current Efforts and Policy Issues for Congress, Congressional Research Service, Order Code 

RL32539, August 20, 2004.
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sengers, 410,000 vehicles, seizes $500,000 in currency 

and 4 tons of narcotics, arrests 2600 fugitives or violators, while facilitating commercial trade and collecting 

$52 million in duty.90

Regulation and Public Policy

Prior to the passage of the USA PATRIOT Act, an individual smuggling bulk quantities of cash was subject to 

criminal penalties and/or jail time91 or civil penalties92

for the failure to file a Report of International Transportation of Currency or Monetary Instruments (CMIR) as 

required by 31 U.S.C. § 5316 and 31 C.F.R. § 103.23. 

The unreported currency was also subject to criminal 

or civil forfeiture.93 Forfeiture authority was curtailed 

by the 1998 case United States v. Bajakajian, in which 

the U.S. Supreme Court held that forfeiture in a case 

involving a CMIR violation is subject to the Excessive 

Fines Clause of the Eighth Amendment.94 The Court 

concluded that, given the relatively insignificant nature 

of the defendant’s reporting violation in that case, the 

forfeiture of over $300,000 in unreported funds would 

be unconstitutionally excessive. The outcome of the 

case impaired law enforcement’s use of forfeiture for a 

reporting violation as a method to deter the smuggling of 

criminal proceeds into or out of the United States.

Aware of this impediment, Congress made the act of 

bulk cash smuggling itself a criminal offense with Section 371 of the USA PATRIOT Act of 2001 (31 U.S.C. 

§ 5332).95 Bulk cash smuggling is defined as concealing and smuggling or attempting to smuggle more than 

$10,000 in currency or monetary instruments into or out 

of the United States with the intent to evade the CMIR 

reporting requirement.96 Bulk cash smuggling is punishable by imprisonment of not more than five years and 

forfeiture of all property, real or personal, involved in 

the offense or traceable to the offense.97 

 

To improve bulk cash smuggling interdiction, CBP has 

developed an Outbound Currency Interdiction Training 

(OCIT) program. The training includes instruction and 

practical exercises to provide specialized knowledge in 

currency interdiction, and has an anti-terrorism component. In FY2003, OCIT trained 56 inspectors.98 

CBP sets performance targets based on the value of outbound currency seizures, and the effectiveness of targeting individuals and vehicles for examination. Outbound 

enforcement targeting effectiveness is the total number 

of positive examinations divided by the total number of 

targeted examinations conducted.99 In FY2003 CBP’s 

seizure target was $49 million, and the actual seizure 

amount was $51.7 million. CBP’s outbound targeting 

effectiveness was 5.74% (the target was 9%). Targeting 

refers to identifying high-risk passengers or vehicles for 

examination. 

In an effort to enlist and expand support on the Mexican 

side of the border for currency interdiction, the United 

States-Mexico Border Partnership was signed in March 

2002.100 The initial bilateral efforts have focused on five 

major programs:

Vehicle and Cargo Inspection System (VACIS) 

refers to devices able to scan (x-ray or gamma 

ray) sealed containers. The United States has 

ten permanent devices capable of scanning up to 

a railroad car size vehicle, three mobile VACIS 

(for moveable truck or car inspection) and three 

portable x-ray scanners (for inspecting luggage) at 

seven border crossing sites, international airports, 

and rail stations. The United States plans to install 

the VACIS machines along the southern border 

this year. 

•

90 National Drug Threat Assessment 2005.

91 31 U.S.C. § 5322(a) or (b).

92 31 U.S.C. § 5321(a).

93 Now codified at 31 U.S.C. § 5317(c).

94 See United States v. Bajakajian, 524 U.S. 321 (1998). 95 See Section 371 of the USA PATRIOT Act of 2001 (Congressional findings in paragraph (a)). 96 31 U.S.C. § 5332.

97 31 U.S.C. § 5317(c).

98Weiss, Martin A., Terrorist Financing: Current Efforts and Policy Issues for Congress, Congressional Research Service, Order Code 

RL32539, August 20, 2004.

99 For more information see DHS, Performance and Accountability Report FY2003, p. 157. 100 Fisk, Daniel W., Deputy Assistant Secretary State for Western Hemisphere Affairs, Statement Before the Senate Committee on Foreign 

Relations, April 6, 2005.
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Advanced Passenger Information System (APIS) 

enables the Mexican authorities to screen passenger 

manifests of incoming commercial air flights against 

law enforcement, terrorism, and immigration data 

banks in both Mexico and the United States. APIS 

was placed into operation in 2004.

Secure Electronic Network for Travelers Rapid 

Inspection (SENTRI) are special land border 

crossing lanes for expedited inspection of preregistered, low risk, frequent travelers to reduce 

inspection loads. CBP now has fully-funded 

projects underway coordinated on both sides of the 

border at six principal crossing sites.

Border Wizard is software the United States uses 

that creates a simulated model of a border crossing 

and inspection site as a management tool to analyze 

traffic flow and resource use. The software is being 

adapted for Mexico.

Safety and Training courses for Mexican border 

law enforcement personnel.

•

•

•

•
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Top Ten Origins and Number of Recorded Seizures of Cash and Monetary

Instruments (2001-2003)

2001 2002 2003

Texas 140 Texas 130 Texas 128

California 122 California 126 California 115

New York 122 New York 81 New York 78

Illinois 113 Illinois 71 Illinois 77

Georgia 76 Georgia 56 Georgia 59

Ohio 60 Ohio 48 Florida 45

Michigan 57 Florida 44 Ohio 45

Florida 48 Michigan 43 Tennessee 39

Missouri 48 Tennessee 32 Michigan 37

North Carolina 47 Missouri 31 Arizona 36

Top Ten Destinations and Number of Recorded Seizures of Cash and Monetary 

Instruments (2001-2003)

2001 2002 2003

California 328 Texas 244 Texas 235

Texas 304 California 238 California 231

Florida 115 Arizona 89 Arizona 99

Arizona 111 Florida 63 Florida 58

Illinois 57 Unknown 41 Georgia 38

Nevada 31 Georgia 25 New York 33

Tennessee 31 New York 25 Illinois 28

Georgia 28 Illinois 24 Tennessee 22

Maryland 28 Tennessee 21 Nevada 21

New York 25 Nevada 18 Colorado 19

No State ID 502 No State ID 333 No State ID 339

Source: El Paso Intelligence Center

Table 8

Table 9
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The data below represents all CBP seizures above $30,000 from FY 2002-FY 2003.

CBP Data for Currency Concealment Method (2002-2003)

Sorted by Number of Seizures Sorted by $ Amount

Concealment 

Method

Number of 

Seizures

Amount in 

Millions

Concealment 

Method

Number of 

Seizures

Amount 

in 

Millions

Unconcealed 561 $243.0 Unconcealed 561 $243.0

Other bag* 317 $50.4 Other bag* 317 $50.4

Suitcase 199 $33.4 Car/Truck 194 $37.4

Car/Truck 194 $37.4 Suitcase 199 $33.4

Express 

package 170 $31.8 Express package 170 $31.8

On body 139 $7.7 Bus/Train/Cycle 108 $30.4

Other 124 $23.2 Other 124 $23.2

Bus/Train/

Cycle 108 $30.4 Unidentified 43 $13.8

Clothing 86 $4.0 Cargo 15 $9.9

Box 45 $9.1 Box 45 $9.1

Unidentified 43 $13.8 On body 139 $7.7

Camper 30 $6.3 Trunk 14 $7.1

Cargo 15 $9.9 Camper 30 $6.3

Mail parcel 14 $4.3 Mail parcel 14 $4.3

Trunk 14 $7.1 Clothing 86 $4.0

Body Cavity 4 $0.4 Cargo Container 2 $0.7

Vessel 4 $0.6 Vessel 4 $0.6

Aircraft 2 $0.2 Body Cavity 4 $0.4

Cargo 

Container 2 $0.7 Aircraft 2 $0.2

Source: “Detection of Outbound Currency” by Keith A. Daum, et. al., published by the Idaho 

National Engineering and Environmental Laboratory Special Programs Department, November 

2004.

* "Other bag" is any type of bag other than suitcase.

Table 10

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TRADE-BASED MONEY LAUNDERING CHAPTER 6

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Chapter 

Trade-

L

Trade-based money laundering encompasses a variety of schemes that enable the cash to be separated from the crime early in the money laundering process. The most common method of trade-based 

money laundering in the Western Hemisphere is the 

Black Market Peso Exchange (BMPE), in which Colombian drug traffickers swap illicit dollars in the United States for clean pesos in Colombia. Other methods 

include manipulating trade documents to over- or underpay for imports and exports, and using criminal proceeds 

to buy gems or precious metals. 

Trade-based money laundering schemes often allow 

criminals to distance themselves from the money laundering process, complicating law enforcement investigations. Immigration and Customs Enforcement (ICE) 

analyzes outbound trade data, and financial and payment 

data, including forms mandated by the BSA – the Currency Transaction Report (CTR), Report of International Transportation of Currency or Monetary Instruments 

(CMIR), Report of Cash Payments over $10,000 Received in a Trade or Business (Form 8300), and the Suspicious Activity Report (SAR) – in an effort to spot the 

anomalies that would indicate trade-based money laundering. The Drug Enforcement Administration (DEA) 

has recently refocused its investigative efforts to address 

the BMPE as it relates to narcotics money laundering.

Black Market Peso Exchange 

The BMPE emerged in the 1980s as a sophisticated alternative to laundering funds through the United States 

banking system, and while used primarily in South 

America and the Caribbean it is most often associated 

with laundering Colombian drug profits.101 The BMPE 

is the largest known money laundering system in the 

Western Hemisphere, responsible for moving an estimated $5 billion worth of drug proceeds per year from 

the United States back to Colombia.102 

The scheme allows drug traffickers to launder their illicit proceeds by exchanging their dollars in the United 

States for pesos in Colombia without physically moving 

funds from one country to the other. Money brokers act 

as intermediaries between the drug traffickers and Colombian businessmen. The money brokers sell the illicit dollars they buy from drug dealers in the United States 

to Colombian businesses that use the money to pay for 

U.S. products such as home appliances, consumer electronics, alcohol, tobacco, and used auto parts, which are 

exported to Colombia and elsewhere. The BMPE has 

many of the same attributes as the hawala system. 

The BMPE originally was driven by Colombia’s restrictive policies on currency exchange. Access to U.S. dollars is regulated by Colombian law and administered by 

the central bank. Before the central bank will exchange 

pesos for dollars, the importer has to demonstrate that 

government import permits have been obtained, thereby 

insuring that the applicable Colombian duties and taxes will be collected. Colombian businesses bypass the 

government levies by dealing with BMPE brokers.103 

When money brokers take possession of illicit U.S. currency, they keep the funds in the United States, often 

enlisting individuals to buy money orders with the drug 

dollars or deposit the money in U.S. bank accounts. As 

additional drug dollars come in, the money brokers use 

runners to deposit the cash or smuggle it out of the country and then wire it into the U.S. accounts from foreign 

banks. The money brokers use those U.S. accounts and 

money orders to pay for U.S. exports on behalf of their 

Colombian business clients. The Colombian businesses 

complete the money laundering cycle, paying for the 

U.S. dollars they need with pesos in Colombia, and the 

pesos, in turn, go directly to local drug traffickers who 

use the money to fund the next narcotics shipment to the 

United States. 

101Zarate, Juan Carlos, Assistant Secretary Terrorist Financing and Financial Crimes, U.S. Department of the Treasury testimony before the 

House Financial Services Committee Subcommittee on Oversight and Investigations, February 16, 2005.

102Tandy, Karen P., Administrator , Drug Enforcement Administration, testimony before the United States Senate Caucus on International 

Narcotics Control, March 4, 2004.

103Tishler, Bonni, Asst. Commissioner, U.S. Customs Service, testimony before the Senate Caucus on International Narcotics Control, June 21, 

1999.
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 Often U.S. merchants become unwitting accomplices in 

the money laundering process by accepting payment in 

funds derived from illegal activity.104 (See “Operation 

Meltdown” Case Example.) A telltale sign of money 

laundering is when the checks, bank wires, or money 

orders used to pay for U.S. merchandise do not come 

from individuals or businesses buying the goods but 

from third parties with no apparent connection to the 

transaction.105 

An analysis conducted by the NY/NJ HIFCA identified 

thousands of transactions involving millions of dollars 

in BMPE activity wired through New York banks in the 

name of a money exchange business in Uruguay. The 

beneficiaries of many of the outgoing wires were electronic or computer vendors in Florida.

Several New York bank accounts revealed structured 

cash deposits, which were subsequently paid out by 

check to vendors in Panama. The Colon Free Trade Zone 

in Panama, where the dollar is the preferred currency, 

allows companies to export goods tax-free. There are 

1,400 companies with assembly plants and warehouses 

there selling everything from appliances and pharmaceuticals to furniture and toys. Hundreds of millions of 

dollars have been traced from U.S. accounts to Panama 

vendors of gold jewelry, electronics, and other goods, 

which were then shipped to Colombia.106

Alternative Trade-based Money Laundering 

Schemes

Criminal organizations may resort to a number of alternatives to the BMPE for transferring value into or out 

of the United States. Each of these schemes relies on 

the misuse of international trade documents. Among the 

most frequently encountered schemes are: over- and under-valuation, misclassification, and double invoicing. 

Each of these schemes is a separate offense that may 

also be an element of the crime of money laundering.

Two of the most common alternative schemes are 

over- and under-valuation. An over-valuation scheme 

involves the presentation of an invoice that overstates 

the true value of the related merchandise. In this case, 

the importer pays more for the merchandise than it is 

truly worth, providing the justification for the importer 

to move money offshore, ostensibly in payment for the 

imported goods. An under-valuation scheme is the same 

thing in reverse. An importer receives merchandise that 

is worth more than declared in the invoice. When the 

importer sells the under-valued merchandise, he receives 

more than the value reflected in the official documentation. If the transferred value represents illicit proceeds, 

the result is money laundering. In addition to being a 

money laundering method, businesses have attempted to 

over- and under-value trade goods in an effort to dodge 

government trade duties, taxes, or other fees based on 

the value of the merchandise sent or received. 

Foreign Trade Zones (FTZs)

Foreign Trade Zones (known as Free Trade Zones outside of the United States) are intended to promote manu104 See generally FinCEN Advisory, Issues 9 & 12. Accessed at: http://www.fincen.gov/advis12.pdf. 105 2003 NY/NJ HIFCA Threat Assessment. 106Roth, John, Chief of the Asset Forfeiture and Money Laundering Section, Dept. of Justice, testimony before the Committee on Government

Reform, Subcommittee on Criminal Justice, Drug Policy, and Human Resources, May 11, 2004.

Case Example 

1 Operation Meltdow

Operation Meltdown, an ICE case that concluded 

in 2003, is a complex and ingenious example of the 

BMPE. Peso brokers created fictional payments for 

gold bullion imported into the United States from 

Colombia. The transactions provided cover for the 

transfer of pesos to Colombian drug suppliers. Actual 

gold bullion was sent to the U.S. and declared to U.S. 

Customs to authenticate the payments. To get the gold 

back to Colombia to repeat the cycle, the bullion was 

disguised by melting it down and molding it into innocuous objects including wrenches, nuts, and bolts, which 

were then painted. The drug suppliers received their 

proceeds in pesos from Colombian merchants. And the 

merchants, in turn, used the drug money in the United 

States to pay for U.S. exports to Colombia. New York 

jewelers participating in the scheme made the payments 

for the exported U.S. goods on behalf of the Colombian 

merchants. Operation Meltdown resulted in 20 convictions for money laundering and BSA violations.
43

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facturing in the host country, but can also be used to 

facilitate money laundering. When U.S.-based manufacturers import parts and materials outside of a Foreign 

Trade Zone (FTZ), they pay import duties based on the 

value of the finished product rather than the value of the 

component parts. Operating in an FTZ allows manufacturers to defer, reduce, or even eliminate U.S. Customs duties.107 There are FTZs throughout the United 

States in 250 communities handling almost $250 billion 

in merchandise.108

Often, criminal operations within an FTZ involve some 

type of import/export scheme. False documentation involving fabricated Bills of Lading and fictitious names 

and addresses are used to misrepresent imports and exports, often with a customs broker who is in collusion 

with the criminals, “brokering” the documents with 

CBP. 

Precious Commodities 

Precious commodities, gems, and metals can be used as 

an alternative to cash to transfer value across borders. 

Like gold and other precious metals, diamonds are attractive to money launderers because they are easily 

concealed and transported, and because they are mined 

in remote areas of the world and are virtually untraceable to their original source.109 Even when diamonds 

are transported openly, it is relatively easy to mislabel 

the quality/value of a diamond for money laundering 

purposes. 

There is growing worldwide recognition of the need to 

scrutinize unusual trade patterns involving commodities. 

An example is “conflict diamonds” emerging from nondiamond producing West African countries and exported 

to Belgium. Conflict diamonds are produced by rogue 

nations that use the proceeds to fund factions opposed to 

legitimate and internationally recognized governments. 

In response to the threat posed by conflict diamonds, 

the Kimberley Process was created to document the 

movement of rough stones through the diamond pipeline and to limit trade to participating countries. The 

Kimberley Process requires that each shipment of rough 

diamonds being exported and crossing an international 

border be transported in a tamper-resistant container and 

be accompanied by a government validated Kimberley 

Process Certificate, which is uniquely numbered and includes the description of the shipment’s contents.110 

Vulnerabilities

Individual prosecutions of peso brokers, their agents 

in the United States, and businesses that buy or receive 

BMPE dollars have been successful, but have had little 

effect on the system or Colombian drug trafficking organizations that sell their dollars to the peso brokers. As 

a consequence, DEA is changing its investigative tactics 

into BMPE money laundering investigations in an effort 

to inflict the most damage upon the Colombian sources 

of drug supply. DEA is also a participant in an ICE-led 

multi-agency initiative to attack the BMPE as a system 

rather than on an individual case-by-case basis.111

FTZs are vulnerable to money launderers due to a lack 

of connectivity and automation. When items are shipped 

through private sector package delivery services they can 

be tracked electronically from pick up to drop off, but no 

similar system exists for U.S. Customs to track commercial goods in real-time moving into or out of FTZs. 

In a case involving money coming into the United 

States, the FTZ in Los Angeles indicated cargo that had 

come in from the FTZ in Miami had left the country 

following receipt of payment from the importer. Law 

enforcement, however, later found the paperwork to be 

fraudulent and the cargo diverted to Kentucky. In a case 

involving money leaving the United States, more than 

$100,000 was sent to a bank in Cyprus for merchandise 

due to be imported into a North Carolina FTZ. Law 

enforcement determined the corresponding paperwork 

107 See The National Association of Foreign Trade Zones, Benefits of FTZs. Accessed at: http://www.naftz.org/index_categories.php/ftzs/5. 108 See U.S. Foreign-Trade Zones Board, Information Summary. Accessed at: http://ia.ita.doc.gov/ftzpage/info/summary.html. 109Yager, Loren, Director, International Affairs and Trade, U.S. General Accounting Office., Testimony before the Subcommittee on Oversight 

of Government Management, Restructuring and the District of Colombia, Committee on Governmental Affairs, U.S. Senate, February 13, 2002. 110Zarate, Juan Carlos, Assistant Secretary Terrorist Financing and Financial Crimes, U.S. Department of the Treasury testimony before the 

House Financial Services Committee Subcommittee on Oversight and Investigations, February 16, 2005.

111 Karen P. Tandy, Administrator , Drug Enforcement Administration, testimony before the United States Senate Caucus on International 

Narcotics Control, March 4, 2004.
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never accurately accounted for any merchandise really 

changing hands. 

The Kimberley Process represents an advance in counteracting the trade in conflict diamonds, yet the procedures were not designed specifically to combat money 

laundering or other financial crimes associated with diamonds. For example, the trade in rough diamonds and 

the mixing of parcels before being imported into a country for finishing and sale is a recognized vulnerability. 

There are reports that in some locations Kimberley certificates can be purchased on the black market. The latest Kimberley Process plenary meeting that took place 

in Canada in October 2004, however, noted significant 

progress in the implementation of the Kimberley Process Certification scheme. Kimberley Process participants now encompass the overwhelming majority of the 

producers and traders in rough diamonds.112 

Regulation and Public Policy

In June 2005, FinCEN issued an interim final rule extending the AML compliance program requirements 

under the BSA to “dealers” in precious metals, stones, 

or jewels.113 Dealers are required to have an AML compliance program documented in writing and approved 

by senior management. The AML program must incorporate policies, procedures, and internal controls based 

upon the dealer’s assessment of the money laundering 

and terrorist financing risks associated with its line of 

business.114 Dealers are also encouraged to adopt procedures for voluntarily filing suspicious activity reports. 

Finally, dealers are separately obligated to report on a 

Form 8300 the receipt of cash or certain non-cash instruments totaling more than $10,000 in one transaction or 

two or more related transactions.115

The ICE Financial and Trade Investigations Division 

is home to the Trade Transparency Unit (TTU), a joint 

112Zarate, Juan Carlos, Assistant Secretary Terrorist Financing and Financial Crimes, U.S. Department of the Treasury testimony before the 

House Financial Services Committee Subcommittee on Oversight and Investigations, February 16, 2005.

113 See 31 CFR 103.140 (70 FR 33702 (2005)). “Dealers” are defined as those who have purchased and sold more than $50,000 in covered 

goods during the preceding year.

114 See 31 CFR 103.140(c)(1). 115 See 26 U.S.C. 6050I and 31 CFR 103.30. 116 Forman, Marcy M., Deputy Assistant Director, Financial Investigations, Immigration and Customs Enforcement, Department of Homeland 

Security, testimony before the House Government Reform Committee Subcommittee on Criminal Justice Drug Policy and Human Resources, 

May 11, 2004.

initiative of the Departments of Homeland Security, 

State, and Treasury. The TTU was created by ICE to 

target and eliminate vulnerabilities in transnational trade 

that can be exploited by criminal organizations to earn, 

move, and store illicit proceeds. Under appropriate 

agreements, ICE and a foreign government exchange 

trade data. The TTU uses a data mining software application, called the Data Analysis and Research for Trade 

Transparency System (DARTTS), to sift through trade 

data, passenger manifests, BSA filings, and immigration 

data looking for anomalies that might indicate BMPE 

activity. DARTTS is also effective in identifying underand over-valuation schemes, and can be used by governments to identify and recover revenue that is denied 

them through the workings of these types of fraud.

One good example of trade transparency in action is the 

joint efforts of ICE and the government of Colombia under Plan Colombia. ICE Special Agents are detailed to 

the Colombian Customs and Tax Authority, and computers and training have been provided to assist in the 

analysis of United States and Colombian trade data, and 

to develop leads for investigation. ICE is attempting to 

duplicate the results of Plan Colombia with other Central and South American countries.116 

 
45

INSURANCE COMPANIES CHAPTER 7

I N S U R A N C E C O M P A N I E S — C H A P T E R 7

Chapter 

INSURANCE COMPANIES

Life, health, and accident insurance generate more 

than half a trillion dollars in premiums and contract revenue annually for U.S. insurers. Much 

of this revenue stream actually comes from the sale of 

annuities. In fact, according to the National Association 

of Insurance Commissioners (NAIC), “the primary business of life/health insurance companies is no longer traditional life insurance, but the underwriting of annuities 

— contracts that guarantee a fixed or variable payment 

over a given period of time.”117 While whole and term 

life insurance policies remain an important part of the 

business, insurance agents and brokers are now often investment advisers selling a variety of financial products. 

The expansion from insurance policies to investment 

products has substantially increased the money laundering threat posed by the insurance industry.

Recently, life insurers have developed products that offer 

a variety of investment options generating fixed or variable returns. These investment products are marketed 

as part of a diversified portfolio, often with tax benefits. 

The introduction of investment products to the insurance 

portfolio has broadened the potential customer base for 

insurers and agents and has created new transaction patterns. For example, a client with traditional insurance 

coverage might have had the fixed monthly premium 

automatically debited from a bank account; now, with 

an eye toward investment returns, that same client could 

choose to invest varying amounts monthly, or a single 

lump sum, potentially delivering cash to the agent. 

A number of money laundering methods have been used 

to exploit the insurance sector, primarily term life insurance policies and annuity products. Money launderers 

exploit the fact that insurance products are often sold 

by independent brokers and agents who do not work directly for the insurance companies. These intermediaries may have little know-how or incentive to screen 

clients or question payment methods. In some cases, 

agents take advantage of their intermediary status to collude with criminals against insurers to perpetrate fraud 

or facilitate money laundering. 

An insurance company may offer its products through a 

number of different distribution channels. Some insurers 

sell their products directly to the insured. Other companies employ agents, who may either be “captive” or independent. Captive agents represent only one insurance 

company; independent agents may represent a variety 

of insurance carriers. Insurance may also be purchased 

through third parties such as financial planners or investment advisors (all of whom must be licensed insurance 

agents). Some companies and agents offer policies via 

the Internet.

Vulnerabilities 

Life insurance policies that can be cashed in are an inviting money laundering vehicle because criminals are 

able to put “dirty” money in and take “clean” money 

out in the form of an insurance company check. An alternative typology is to borrow against a life insurance 

policy that is funded with illicit proceeds. Similarly, annuity contracts allow a money launderer to exchange illicit funds for an immediate or deferred “clean” income 

stream. These vulnerabilities generally do not exist in 

products offered by property and casualty insurers, or by 

title or health insurers. 

Even when insurers have AML guidance in place, agents 

who sell insurance policies and investment contracts often are not employed directly by the insurer or service 

provider, which can make it difficult for companies to 

ensure their AML policies and procedures are followed. 

Further complicating AML practices, the policyholder, 

or purchaser of an insurance contract, may not be the 

beneficiary or even the subject of the insurance coverage. The potential for multiple parties to be involved in 

a single contract makes it difficult to perform customer 

due diligence.

Money laundering through insurance has been generally confined to life insurance products although the actual typologies vary significantly. In one case, federal 

law enforcement agencies discovered Colombian drug 

cartels were using drug proceeds to buy life insurance 

policies, which were subsequently liquidated with the 

cash value transferred to an offshore jurisdiction. The 

cash surrender value of a life insurance policy is often 

117 NAIC, Life Insurance — Facts and Statistics. Accessed at: http://www.iii.org/media/facts/statsbyissue/life/.
46

CHAPTER 7 INSURANCE COMPANIES

I N S U R A N C E C O M P A N I E S — C H A P T E R 7 

much less than the amount invested because of liquidation penalties, particularly if the policy has only been in 

existence for a few years. But from the drug traffickers’ 

perspective, the liquidation penalty is, in effect, a cost of 

doing business.118 

In another case conducted by ICE, illicit drug proceeds 

were used to purchase three term life insurance policies 

in Austin, Texas, followed shortly afterward by an attempt to cash in the policies.119 Federal law enforcement 

agencies report similar cases involving money laundering through the purchase of variable annuity contracts. 

A major ICE investigation into Eagle Star Life, based 

in the Isle of Man, with an office in Miami, was identified through information received in a narcotics smuggling investigation as issuing policies paid for with drug 

proceeds. The suspicious policies were established from 

1995 through 2003 by one “master broker” who operated in Colombia and other South American countries. 

The policies were funded in several ways. In many instances, a large wire transfer was sent to the insurer on 

instructions from the broker. Once received, the broker 

would direct the allocation of funds to various policies. 

Eagle Star also received payments via third-party checks 

and structured money orders. Most alarming is evidence 

that some policies were paid for with funds from brokers’ commission accounts. In this scenario, the brokers 

accepted cash from the client in Colombia and credited 

the client’s policy with funds from the brokers’ business 

operating account or from commission checks.

Regulation and Public Policy

The insurance industry in the United States is currently 

subject to state rather than federal regulation. State regulation focuses primarily on safety and soundness rather 

than AML. However, FinCEN, pursuant to the BSA, is 

promulgating AML regulations for the industry. 

States oversee the organization and capitalization of insurance companies, permissible investments, licensing of 

companies and agents, and the form and content of policies. However, there is no consistency across the state 

regulatory regimes. States vary on how examinations 

are structured, how many examinations are performed, 

and how examiners are trained. As a result, states report 

they find it difficult to depend on other states’ oversight 

of companies’ market behavior.120

Some states have subjected insurance companies to 

AML statutes. According to an unpublished survey conducted by the National Association of Insurance Carriers, thirty-eight states have money laundering statutes, 

twenty-one have currency reporting requirements, and 

one has a suspicious activity reporting requirement.121

FinCEN issued two sets of final rules for the insurance 

industry in 2005, the first covering minimum standards 

for AML programs and the second covering suspicious 

activity reporting requirements.122 The final rules apply 

to insurance companies that issue or underwrite certain 

products that present a high degree of risk for money 

laundering or the financing of terrorism or other illicit 

activity. The insurance products subject to these rules 

include:

Permanent life insurance policies, other than group 

life insurance policies;

Annuity contracts, other than group annuity 

contracts; and

Any other insurance products with cash value or 

investment features.

The AML rule requires insurance companies offering 

covered insurance products to establish programs that 

include, at a minimum, the development of internal policies, procedures, and controls; the designation of a compliance officer; and ongoing employee training program; 

and, an independent audit function.

•

•

•

118 See United States v. The Contents of Account No. 400941058 at JP Morgan Chase Bank, New York, NY, Mag. Docket No. 02-1163 (SDNY 

2002) (warrent of seizure).

119 See In the Matter of Seizure of the Cash Value and Advance Premium Deposit Funds, Case No. 2002-5506-00007 (W. D. Tex. 2002). 120 United States General Accounting Office, Insurance Regulation: Preliminary Views on States’ Oversight of Insurers’ Market Behavior, 

GAO-03-738T, May 6, 2003.

121 67 FR 64067. 122 Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act Regulations -- Anti-Money Laundering Programs for 

Insurance Companies, RIN 1506-AA70, Nov. 3, 2005 and Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Act 

Regulations- Requirement That Insurance Companies Report Suspicious Transactions, RIN 1506-AA36, Nov. 3, 2005.
47

SHELL COMPANIES AND TRUSTS CHAPTER 8

S H E L L C O M P A N I E S A N D T R U S T S — C H A P T E R 8

Chapter 

SHELL COMPANIES AND 

TRUSTS

Legal jurisdictions, whether states within the United States or entities elsewhere, that offer strict secrecy laws, lax regulatory and supervisory regimes, and corporate registries that safeguard anonymity are obvious targets for money launderers. A handful 

of U.S. states offer company registrations with cloaking 

features – such as minimal information requirements and 

limited oversight – that rival those offered by offshore 

financial centers. Delaware, Nevada, and Wyoming are 

often cited as the most accommodating jurisdictions in 

the United States for the organization of these legal entities. 

The use of bearer shares, nominee shareholders, and 

nominee directors function to mask ownership in a corporate entity. While these mechanisms were devised 

to serve legitimate purposes, they can also be used by 

money launderers to evade scrutiny.

In general, shell companies have no physical presence 

other than a mailing address, employ no one, and produce nothing. One controversial but legitimate function 

for shell companies is to serve as a holding company for 

intellectual property rights. When franchisees or licensees are billed for their use of intellectual property, such 

as a brand name or trademark, earnings are shifted to the 

location of the holding company which affects where 

earnings are recognized and taxes are paid. 

Intermediaries, called nominee incorporation services 

(NIS), establish U.S. shell companies and bank accounts 

on behalf of foreign clients. NIS may be located in the 

United States or off-shore. Corporate lawyers in the 

United States often use NIS to organize companies on 

behalf of their domestic and foreign clients because such 

services can efficiently organize legal entities in any 

state. NIS must comply with applicable state and federal procedures as well as any specific bank requirements. 

Those laws and procedures dictate what information NIS 

must share about the owners of a legal entity. Money 

launderers have also utilized NIS to hide their identities. 

By hiring a firm to serve as an intermediary between 

themselves and the licensing jurisdiction and the bank, a 

company’s beneficial owners may avoid disclosing their 

identities in state corporate filings and in the documentation used to open corporate bank accounts.

Several mechanisms operate to provide corporate entities with additional anonymity. Bearer shares are negotiable instruments that accord ownership of a company 

to the person who possesses the share certificate. Such 

share certificates do not contain the name of the shareholder and are not registered, with the possible exception of their serial numbers. Accordingly, these shares 

provide for a high level of anonymity and are easily negotiable. 

Nominee shareholders can also be used in privately-held 

companies to shield beneficial ownership information. 

The allowance of nominee shareholders undermines the 

usefulness of the shareholder register or the shareholder 

list because the shareholder of record may not be the 

ultimate beneficial owner. Similarly, nominee directors and companies serving as directors of a legal entity 

may conceal the identity of those persons controlling the 

company. 

Trusts separate legal ownership from beneficial ownership and are useful when assets are given to minors or 

individuals who are incapacitated. The trust creator, or 

settlor, transfers legal ownership of the assets to a trustee, 

which can be an individual or a corporation. The trustee 

fiduciary manages the assets on behalf of the beneficiary 

based on the terms of the trust deed. 

Although trusts have many legitimate applications, they 

can also be misused for illicit purposes. Trusts enjoy a 

greater degree of privacy and autonomy than other corporate vehicles, as virtually all jurisdictions recognizing 

trusts do not require registration or central registries and 

there are few authorities charged with overseeing trusts. 

In most jurisdictions, no disclosure of the identity of the 

beneficiary or the settlor is made to authorities. Accordingly, trusts can conceal the identity of the beneficial 

owner of assets and, as will be discussed below, can be 

abused for money laundering purposes, particularly in 

the layering and integration stages.

Vulnerabilities 

Legal entities such as shell companies and trusts are used 

globally for legitimate business purposes, but because of 

their ability to hide ownership and mask financial details 

they have become popular tools for money launderers. 
48

CHAPTER 8 SHELL COMPANIES AND TRUSTS

S H E L L C O M P A N I E S A N D T R U S T S — C H A P T E R 8 

The use of these legal structures for money laundering 

is well-established. The United Nations noted in a 1998 

report that “the principal forms of abuse of secrecy have 

shifted from individual bank accounts to corporate bank 

accounts and then to trust and other corporate forms that 

can be purchased readily without even the modest initial 

and ongoing due diligence that is exercised in the banking sector.”123 

The competition among certain states to attract legal entities to their jurisdictions has created a “race to the bottom,” and a real money laundering threat. (See Figure 2) 

While they are often used for legitimate purposes, bearer 

shares, nominee shareholders, and trusts also provide 

money launderers with the tools to hide their identity 

from financial institutions and law enforcement.

As an example, a Delaware-registered company may be 

owned by a national of any jurisdiction, regardless of 

his or her place of residence. The company can be operated and managed worldwide, and is not required to 

report any assets. Eastern European and Russian law 

enforcement agencies have expressed concern that regional criminal organizations were abusing Delaware 

shell companies for money laundering.124 And German 

prosecutors have reportedly complained that the secrecy 

inherent in Delaware’s regime for legal entities has hindered investigations into suspicious financial activity.125 

But, Delaware is not the most permissive jurisdiction 

in the United States with regard to company formation. 

Both Nevada and Wyoming permit companies to have 

bearer shares and nominee shareholders, which Delaware does not. 

The FBI has found that certain NIS form corporate entities, open full-service bank accounts for those entities, 

and act as the registered agent to accept service of legal 

process on behalf of those entities in a jurisdiction in 

which the entities have no physical presence. An NIS 

can accomplish this without ever having to identify beneficial ownership on company formation, registration, or 

bank account documents. The FBI believes that U.S. 

shell companies and bank accounts arranged by certain 

NIS firms are being used to launder as much as $36 billion a year from the former Soviet Union. It is not clear 

whether these NIS firms are complicit in the money 

laundering abuse. 

Several international NIS firms have formed partnerships 

or marketing alliances with U.S. banks to offer financial 

services such as Internet banking and wire transfer capabilities to shell companies and non-U.S. citizens. The 

FBI reports that the U.S. banks participating in these 

marketing alliances open accounts through intermediaries without requiring the actual account holder’s physical presence, accepting by mail copies of passport photos, utility bills, and other identifying information.126 

FinCEN reports that 397 SARs were filed between April 

1996127 and January 2004 involving shell companies, 

Eastern European countries,128 and the use of correspondent bank accounts.129 The aggregate violation amount 

reported in those 397 SARs totaled almost $4 billion.

The State of New York Banking Department recently 

noted that Suspicious Activity Reports filed by New 

York banks indicate an increase in the volume of shell 

company wire transfer activity through high-risk correspondent bank accounts, both in terms of dollar amounts 

and the number of transactions.130 These reports indicate 

that money is passing through correspondent accounts 

123 United Nations Office for Drug Control and Crime Prevention, “Financial Havens, Banking Secrecy and Money-Laundering,” 1998, p. 57.

Accessed at: http://www.cf.ac.uk/socsi/whoswho/levi-laundering.pdf. 124 Simpson, Glenn R., Laundering Queries Focus on Delaware, Wall Street Journal, Sept. 30, 2004. 125Crawford, David, German Officials Fault U.S. on Money-Laundering Woes, Wall Street Journal, June 18, 2003. 126 In addition to furnishing shell companies with bank accounts, intermediaries sometimes set up shell banks – foreign banks that do not 

maintain a physical presence in any country – that are never licensed with a regulatory authority. Such shell banks customarily attempt to pass 

themselves off as operating brick-and-mortar banks and gain access to the U.S. banking system through “nested” correspondent accounts. See 

supra Chapter 2, “Banking,” for more information. 127The date financial institutions were mandated to file Suspicious Activity Reports 128The eastern European countries that were identified in Suspicious Activity Report narratives with shell companies included Armenia, 

Belarus, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Georgia, Greece, Kazakhstan, Latvia, Lithuania, Moldova, Poland, Romania, 

Russia, Slovenia, Turkey, Turkmenistan, Ukraine, Uzbekistan, and Yugoslavia.

129 During this time period a total of approximately 1.5 million SARs were filed. 130 Financial Crimes Enforcement Network, Suspicious Activity Review, Issue 7, August 2004.
49

SHELL COMPANIES AND TRUSTS CHAPTER 8

S H E L L C O M P A N I E S A N D T R U S T S — C H A P T E R 8

established for Eastern European banks. 

Trusts often constitute the final layer of anonymity for 

those seeking to conceal their identity. Recent changes 

in the trust laws of some jurisdictions have aided money 

launderers in their use of trusts to conceal identity and 

to perpetrate fraud. In certain jurisdictions, such as the 

Cook Islands, Nevis, and Niue, the trust laws no longer 

require the names of the settlor and the beneficiaries to 

be placed in the trust deed, permit settlors to retain control over the trust, and allow trusts to be revocable and of 

unlimited duration. In addition, the amended trust laws 

typically permit the trust deed to include a “flee clause,” 

a provision triggered by the occurrence of certain events 

that directs the assets of the trust to be moved to another 

jurisdiction and new trustees to be appointed.

Regulation and Public Policy 

Trust companies are defined as “financial institutions” 

under the Bank Secrecy Act. Shell companies are not 

specifically listed in the BSA, but could be regulated under the BSA under one of the two catch-all provisions of 

31 USC 5312(a), given an appropriate record. 
50

CHAPTER 8 SHELL COMPANIES AND TRUSTS

S H E L L C O M P A N I E S A N D T R U S T S — C H A P T E R 8 

A Side by Side Comparison of Wyoming and Nevada and Delaware

Benefits Nevada Wyoming Delaware

Minimal annual fees ✗

One-person company is allowed ✗ ✗ ✗

Stockholders are not revealed to the State ✗ ✗ ✗

No annual report is required until the anniversary of the 

incorporation date ✗

Unlimited stock is allowed, of any par value ✗ ✗

Bearer stock can be used ✗ ✗

Nominee shareholders are allowed ✗ ✗

Share certificates are not required ✗

Minimal initial filing fees ✗

No minimum capital requirements ✗ ✗ ✗

Meetings may be held anywhere ✗ ✗ ✗

Officers, directors, employees and agents are statutorily 

indemnified ✗ ✗

Continuance procedure (allows Wyoming to adopt a 

company formed in another state) ✗

Doesn’t collect corporate income tax information to share 

with the IRS ✗ ✗

Copyright 1994-2005 by Corporations Today, Inc. Accessed at: http://www.corporationstoday.com/compare.html#compare.

Figure 2
51

CASINOS CHAPTER 9

C A S I N O S — C H A P T E R 9

Chapter 

More than $800 billion was wagered at approximately 845 casinos and card clubs in the United States in 2003, accounting for approximately 

85 percent of the total amount of money wagered for all 

legal gaming activities throughout the country.131 In 

addition to gaming, casinos offer their largely transient 

customer base a broad array of financial services, such 

as deposit and credit accounts, funds transfers, check 

cashing, and currency exchange services, that are similar to those offered by depository institutions and other 

types of financial institutions. As high-volume cash 

businesses, casinos are susceptible to money laundering 

as well as many other financial crimes and were the first 

non-bank financial institutions required to develop AML 

compliance programs.132 

The most notable development in this field is the striking growth of Native American casinos, which have 

enjoyed annual double-digit revenue growth for the last 

ten years (See Chart 1). These tribal casinos are moving rapidly from relative obscurity within the casino industry to a prominent position with ample potential for 

money laundering and other types of financial crimes. 

The regulatory structure of the tribal gaming industry is 

intricate, with somewhat overlapping layers of responsibility at the tribal, state, and federal levels. 

In 2004, casino gambling, including commercial casinos 

– both land-based and riverboat – tribal casinos, card 

rooms and racinos133 was legal in 34 states and 3 other 

jurisdictions (i.e., Puerto Rico, the U.S. Virgin Islands, 

and Tinian) and some 200 counties.134 According to the 

American Gaming Association, Nevada leads the nation 

as the state with the highest casino revenue with $9.625 

billion in 2003. 

There are 567 federally recognized Indian Tribes (half 

are in Alaska), and 223 of them operate 411 gaming 

facilities in 28 states.135 Of these, 307 are considered 

casino operations (the remainder are basically bingo 

halls). Collectively, tribal casinos took in $18.5 billion 

in revenue last year, twice the amount generated by Nevada casinos.136 If the tribal gaming industry were a 

single company, rather than 307 casinos, it would rank 

near the top 100 corporations in America. Tribal gaming interests have what is currently the largest casino 

in the United States, Foxwoods Resort and Casino, located in Mashantucket, Connecticut and owned by the 

131 FinCEN SAR Activity Review, Issue 8, April 2005. 132 Statement of William J. Fox, director, Financial Crimes Enforcement Network, U.S. Department of the Treasury, before the Senate 

Committee on Banking, Housing, and Urban Affairs, September 28, 2004.

133Racinos are racetracks with electronic gaming devices. The term “racino” has not been separately defined nor included specifically in the 

definition of casino for purposes of the BSA. Instead, FinCEN has relied on the state, territory or tribal characterization of “racino”gaming in 

determining whether an entity or operation should be treated as a casino for purposes of the BSA. Therefore, if state law defines or 

characterizes slot machine operations at a racetrack as a “casino, gambling casino, or gaming establishment,” and the gross annual gaming 

revenues of that operation exceed the $1 million threshold, then the operation would be deemed to be a “casino” for purposes of the BSA and 

subject to all applicable requirements.

134The InfoShop, Report: Casino Gambling—U.S. (Nov. 2004). Accessed at: http://www.the-infoshop.com/study/mt25476_casino_gambling.

html. 135 National Indian Gaming Association, An Analysis of the Economic Impact of Indian Gaming in 2004. Accessed at: http://www.

indiangaming.org. 136MSNBC, Tribal Casino Revenues Double Nevada’s, Feb. 15, 2005. Accessed at: http://www.msnbc.msn.com/id/6976517/.

Chart 1
52

CHAPTER 9 CASINOS

C A S I N O S — C H A P T E R 9 

Mashantucket Pequot Tribe. The west coast (primarily 

California) represents the fastest growing region for the 

Indian gaming industry.137

According to FinCEN, most tribal casinos are small to 

mid-size operations typically without deposit or credit 

accounts for customers and with few gaming tables, 

relying instead on slot machines for gaming revenues. 

Commercial casinos, by comparison, offer more table 

games. Table games require more cash handling on the 

gaming floor than slot machines. Consequently, commercial casinos offer more sophisticated account services and, correspondingly, pose a greater money laundering threat.138 

Vulnerabilities 

Law enforcement and media reports indicate that criminals typically launder money through casinos by exchanging illicit cash for casino chips and then either:

Holding the chips for a period of time and later 

cashing them in for a casino check or having the 

casino wire the money elsewhere; 

Using the chips as currency to purchase narcotics, 

with the drug dealer later cashing in the chips; or,

Using the chips to gamble in hopes of generating 

certifiable winnings.

Criminals also use casinos to launder counterfeit money 

as well as large currency notes that would be conspicuous and difficult to use elsewhere, and which may be 

marked by undercover law enforcement officers. Suspicious activities at casinos often involve customers structuring transactions to avoid recordkeeping or reporting 

thresholds, using agents to cash-out multiple transactions 

for an anonymous individual, providing false documents 

or identifying information, or layering transactions to 

disguise their source. 

The IRS-Criminal Investigation division reports the following case examples of casinos used for money laundering: 

•

•

•

Criminals laundered money through video poker 

games by feeding illicit proceeds into the machines 

(one, five, and ten dollar bills) and then either after 

playing briefly or not at all, they pressed the “cash 

out” button which generated a receipt that was 

redeemed for a casino check.

A major cocaine and heroin dealer played the $100 

slot machines in Las Vegas and Atlantic City, 

wagering hundreds of thousands of dollars, in order 

to receive a casino check for his eventual winnings 

and an IRS Form W-2G to legitimize the income. 

The drug dealer also purchased Pennsylvania 

lottery tickets from winners, paying them more 

than the winning payout in order to receive a state 

check and an IRS Form W-2. The individual 

eventually invested the laundered money in rental 

properties.

While criminals will often structure their 

transactions to avoid financial institutions’ filing 

CTRs, money launderers using casinos have 

the opposite strategy. In one case, a number of 

people purchased chips with illicit cash in amounts 

below the CTR threshold, but then passed the 

chips to one individual who cashed out, receiving 

a casino check and triggering the filing of a CTR 

that gave the appearance of further authenticating 

the transaction. Over a twelve-month period, one 

individual was named in casino CTRs reporting 

$1.1 million paid out, but was not named in a single 

CTR for cash taken in.

In one case, a money launderer purchased casino 

rewards cards from legitimate patrons. The cards 

increase in value with each casino visit and with 

each gambling session. The cards were purchased 

with illicit cash and were then traded in for gold 

coins at a casino store. An employee at the store 

was an accomplice in the laundering scheme.

A constant threat at casinos is insiders taking advantage of their position either to steal or assist others with 

money laundering. ICE recently charged six people, in-

•

•

•

•

137 Ibid. 138Many offer front money (deposit and withdrawal) accounts where money is deposited by a customer into a casino account at the cage that 

the customer can later withdraw at either the cage (in the form of casino check, currency, money transfer, etc.) or at the gaming tables (in the 

form of chips to bet or wager with).
53

CASINOS CHAPTER 9

C A S I N O S — C H A P T E R 9

cluding a tribal leader, with attempting to steal $900,000 

from a Native American casino. Among the charges are 

conspiracy, theft, and money laundering. 

Regulation and Public Policy 

Casinos in the United States are subject to a decentralized regulatory structure and are primarily regulated by 

the states and by tribal regulatory authorities. Under the 

BSA and its implementing regulations, a gaming operation is defined as a financial institution subject to the 

requirements of the BSA if it has annual gaming revenue 

of more than $1,000,000 and is licensed as a gaming 

establishment under state or local law and authorized to 

do business in the United States, or is an Indian gaming operation conducted under or pursuant to the Indian 

Gaming Regulatory Act (IGRA).139 

State-licensed gambling casinos were generally made 

subject to the recordkeeping and currency reporting requirements of the BSA by regulation in 1985. Casinos 

authorized to do business under the IGRA140 were made 

subject to the BSA in 1996. Card clubs became subject 

to the BSA in 1998. 

Casinos in Nevada, with gross annual gaming revenues 

of $10,000,000 or more and “table games statistical 

win” of $2 million or more, currently are, under a special agreement with the Department of the Treasury, 

subject to Nevada Gaming Commission Regulation 6A. 

The Nevada Gaming Commission’s regulation, like the 

BSA, stipulates currency reporting and recordkeeping 

requirements.141 

 

All casinos (including those in Nevada) and card 

clubs, with gross annual gaming revenue in excess of 

$1,000,000, are required to file casino CTRs to report 

each currency transaction involving cash-in or cash-out 

of more than $10,000 in a “gaming day” with a customer. Under the BSA, multiple currency transactions 

conducted by or on behalf of the same customer on the 

same gaming day are considered to be one transaction 

for CTR purposes. 

In September 2002, FinCEN adopted a rule requiring casinos (including those in Nevada) and card clubs to file 

SARs for suspicious transactions occurring after March 

25, 2003. SARs must be filed for any suspicious transaction that involves or aggregates at least $5,000 in funds 

or other assets. Nevada casinos with gross annual gaming revenue of $1,000,000 or more are subject to BSA 

requirements to (i) establish and maintain a written antimoney laundering program and (ii) report suspicious activity.142 Further, Nevada casinos that are not subject to 

Regulation 6A, but that have gross annual gaming revenue in excess of $1,000,000, are subject to all of the 

provisions of the BSA applicable to casinos generally.143

FinCEN has delegated authority to the IRS to examine 

Nevada casinos for compliance with the BSA. 

Since April of 1999, FinCEN has brought a number 

of enforcement actions against casinos for BSA violations.144 In an effort to head off a large-scale failure on 

the part of a casino to file the required BSA forms, FinCEN has developed with the IRS an “early warning system.” It involves a monthly database query comparing 

the volume of casino CTRs filed for the current month 

with the volume of CTRs filed during the same month 

the previous year. The database query produces a report 

listing casinos whose CTR filing volume has fallen by 

30 percent or more. The hope is that this early warning 

system will flag a casino that is substantially disregarding its BSA obligations. 

139 See 31 U.S.C. § 5312(a)(2)(X) and 31 C.F.R. §§ 103.11(n)(5)(i) and (n)(6)(i). 140The Indian Gaming Regulatory Act, Section 1 of Pub. L. 100-497 (1988) (codified generally at 25 U.S.C. § 2701 et seq.), established the 

jurisdictional framework that governs Indian gaming. The Act establishes three classes of games with a different regulatory scheme for each. 

Class I gaming is defined as traditional Indian gaming and social gaming for minimal prizes. Regulatory authority over class I gaming is 

vested exclusively in tribal governments. Class II gaming is basically bingo operations, and although primarily regulated by the Tribes, they 

must comply with National Indian Gaming Commission’s Minimal Internal Control Standards. Class III gaming is comparable to casino 

gaming and is subject to BSA requirements as well as National Indian Gaming Commission requirements.

141The Nevada Gaming Control Board recommended the repeal of Regulation 6A to the Nevada Gaming Commission at the Commission’s 

May 19, 2005 meeting. In the meantime, FinCEN is developing an information sharing Memorandum of Understanding to be entered into 

with the Board to assure consistency in the application of Bank Secrecy Act requirements. FinCEN also will be working with the Board and 

the IRS to assure consistency in examining Nevada casinos for Bank Secrecy Act compliance. 142 See 31 C.F.R. §§ 103.64(a), 103.120(d), and 103.21. 143 See 31 C.F.R. § 103. 144 See FinCEN, Regulatory/Enforcement Actions. Accessed at: http://www.fincen.gov/reg_enforcement.html.
54

CHAPTER 9 CASINOS

C A S I N O S — C H A P T E R 9 

Part of the challenge of establishing an effective BSA 

oversight regime for tribal casinos is coordinating the 

various regulatory bodies. Tribal governmental gaming 

is regulated on three levels:

Tribes regulate their own gaming operations 

through tribal gaming commissions, compliance 

officers, tribal law enforcement officers, and tribal 

courts.

States regulate tribal gaming at a level negotiated 

through tribal/state compacts.

The federal government regulates tribal gaming 

through:

The National Indian Gaming Commission, 

which is the primary federal regulator, 

providing oversight, reviewing licensing of 

gaming management and key employees, 

management contracts, and tribal gaming 

ordinances;

The Secretary of the Interior, who oversees 

the Tribal-State compact process, and reviews 

and approves compacts;

The Department of the Treasury which, 

through FinCEN, implements the BSA as it 

applies to tribal casino operations; and,

The Department of Justice, which, through 

the FBI, has federal criminal jurisdiction 

over acts directly related to Indian gaming 

establishments.

The IGRA gives the FBI federal criminal jurisdiction 

over acts directly related to Indian gaming, including 

those located on reservations under state criminal jurisdiction. The FBI’s Indian Country Unit established 

the Indian Gaming Working Group (IGWG) in February 2003 to identify and direct resources to Indian gaming matters and to focus on “national impact” cases.145 

However, the FBI acknowledges that it has been able 

•

•

•

1.

2.

3.

4.

to devote limited investigative resources to Indian gaming violations even as the Indian gaming industry has 

grown. This growth, coupled with overlapping regulatory jurisdictions and limited enforcement resources, 

has generated concern over the potential for large-scale 

criminal activity in the Indian gaming industry. 

145 IGWG members include FinCEN, the FBI, the Department of Interior-Office of Inspector General, the National Indian Gaming 

Commission, the Internal Revenue Service Tribal Government Section, the U.S. Department of Justice, and the Bureau of Indian Affairs.
55

CASINOS CHAPTER

9

C A S I N O S — C H A P T E R 9

Chart 2

Suspicious Activity Report 

by Casinos & Card Clubs (SAR-C) Filings by Type of Gaming Establishment August 1, 1996 through December 31, 2004

Type of Gaming 

Establishment 1996 1997 1998 1999 2000 2001 2002 2003 2004

State Licensed Casino - 22 288 262 309 1,215 1,621 4,393 4,694Tribal Licensed Casino - 21 117 112 115 114 120 539 936Card Club - - 3 3 1 1 9 19 27Other - - - 3 - - - 1 1Unspecific/Blank 85 2 152 70 45 48 84 165 121Unspecific/Blank 85 2 152 70 45 48 84 165 121

Source: Financial Crimes Enforcement Network

Table 11

57

APPENDIX A A

A P P E N D I X A

Appendix A

NDIC 

As part of the 2005 Money Laundering Threat 

Assessment, the National Drug Intelligence 

Center (NDIC) analyzed asset seizure data from 

five federal law enforcement agencies (CBP, DEA, FBI, 

ICE, and IRS-CI) to identify the top cities for asset seizures in the United States. NDIC analysts compared all 

available asset seizure data from 2001-2004, to reduce 

biases that arise from anomalous years. 

The analysis was hindered by certain incompatibilities 

among the data sets, most significantly variations in the 

geographic boundaries among agency districts and variations in the types of assets counted by the respective 

agencies (cash and monetary instruments only vs. all 

seized property). NDIC harmonized the geographic disparities by shifting their focus to primary metropolitan 

centers and performing a county-by-county comparison 

of regional overlaps among agency districts to ensure 

that similar regions were being compared. 

To minimize distortions caused by differences in individual agencies’ systems of collecting data, NDIC 

began by assembling separate rankings of the top seizure regions for each agency independently. A score 

of “1” was assigned to the region with the highest seizure total, and so on. Each agency’s scores were then 

weighted based on that agency’s aggregate seizure figures as a proportion of total U.S. seizures. All agencies’ 

weighted scores were totaled to derive, for each region, 

an aggregate, inter-agency score. (See Table 12) As a 

check, NDIC also tallied the original, unweighted rankings, thereby assigning each law enforcement agency’s 

scores equal weight. The outcome was identical for the 

top five cities, with minor changes among the bottom, 

closely-spaced five.146

Notably, there is a substantial gap between the amounts 

of money laundering being detected in the top three regions and the rest of the country. As one proceeds beyond the top few regions, the incremental differences in 

seizure totals and scores shrink dramatically.

To corroborate the validity of these rankings, NDIC 

overlaid data from FinCEN and from the DEA’s Federal 

Drug Seizure System (FDSS).147 Using the locations 

of the police organizations filing information requests 

through FinCEN under Section 314(a) of the USA PATRIOT Act, NDIC was able to determine that approximately 81% of the criminal cases underlying the 314(a) 

requests were in the top ten cities for asset seizures and 

146 The unweighted order of the cities was (1) New York; (2) Miami; (3) Los Angeles; (4) Phoenix/Tucson; (5) Houston; (6) Detroit; (7) 

Chicago; (8) Atlanta; (9) Boston; (10) San Juan. 

147 Federal-Wide Drug Seizures: Drug Seizures Ranked By Top Five Areas, Drug Intelligence Brief, Drug Enforcement Administration, 

Intelligence Division, DEA 04026, June 2004.

61% of the cases were in the top three cities. That finding accords with the fact that, in the law enforcement 

data sets NDIC used, the total dollar amount seized in 

the top three cities (New York, Miami, and Los Angeles) exceeded the total dollar amount seized in the rest of 

the top ten cities combined. 

Data from FDSS, which tallies federal law enforcement 

drug seizures, also revealed a close correlation with the 

Region Score Ranking

New York 1.92 1

Miami 3.40 2

Los Angeles 3.74 3

Phoenix/Tucson 6.61 4

Houston 8.12 5

Boston 8.50 6

Detroit 8.52 7

San Juan 8.55 8

Atlanta 8.60 9

Chicago 8.85 10

Table 12
58

A APPENDIX A

A P P E N D I X A 

top ranked cities for asset seizures. (See Table 13)

Indeed, NDIC’s analysis suggests that drug money 

may be the most common source of illicit proceeds being laundered in the United States. It should be noted, 

however, that there is not full overlap between the asset 

seizure top ten cities list and the top ten drug markets 

in the country,148 and other criminal activity – such as 

fraud and white collar crime – is represented in the asset 

seizure figures in significant numbers.

Ranking of States Based on 

Federal Drug Seizure System data (1999-2003)

Heroin Cocaine Marijuana Methamphetamine

NY 1 TX 1 TX 1 CA 1

FL 2 FL 2 AR 2 TX 2

CA 3 CA 3 CA 3 AR 3

TX 4 PR 4 NM 4 FL 4

NJ 5 NY 5 FL 5 GA 5

PR 6 PR 6 NM 6

 Source: Federal Drug Seizure System

Table 13

148 Washington, DC, Tampa, and Philadelphia are examples of cities with more Consolidated Priority Organizational Targets than several of the 

cities on the top ten asset seizures list. 
59

APPENDIX B B

A P P E N D I X B

Appendix B

Fince
60

B APPENDIX B

A P P E N D I X B 
61

APPENDIX B B

A P P E N D I X B
62

B APPENDIX B

A P P E N D I X B 
63

APPENDIX B B

A P P E N D I X B

Top Ten Suspicious Activity Report 

Filing Locations

January 2004 to June 2005

Depository Institution SARs SAR-Cs

Filer City Count Filer City Cou

New York, NY 28,187 Atlantic City, NJ 2,796

Los Angeles, CA 19,379 Las Vegas, NV 984

Wilmington, DE 11,796 Biloxi, MS 441

Phoenix, AZ 11,329 Uncasville, CT 270

Houston, TX 10,444 Bossier City, LA 262

Salt Lake City, UT 8,757 Detroit, MI 259

San Francisco, CA 8,633 Lawrenceburg, IN 196

Chicago, IL 7,385 Elizabeth, IN 144

Las Vegas, NV 7,223 Niagara Falls, NY 142

Brooklyn, NY 7,005 San Juan, PR 136

SAR-MSBs SAR-SFs

Filer City Count Filer City Cou

New York, NY 21,259 New York, NY 1,161

Phoenix, AZ 14,678 Bellevue, NE 986

Houston, TX 14,071 Boston, MA 698

Los Angeles, CA 12,538 Minneapolis, MN 458

Flushing, NY 11,717 San Francisco, CA 456

Brooklyn, NY 10,025 Rancho Cordova, CA 441

Mountain View, CA 9,160 Chicago, IL 230

San Jose, CA 8,458 Jersey City, NJ 207

Chicago, IL 7,236 Miami, FL 117

Bronx, NY 7,140 Houston, TX 103
64

B APPENDIX B

A P P E N D I X B 

Top Ten Suspicious 

Activity Report 

(All SAR Forms) Filing 

Locations

January 2004 to June 2005

Top Ten Currency 

Transaction Report 

Filing Locations

January 2004 to June 2005

Filer City Count Filer City Cou

New York, NY 50,607 Los Angeles, CA 471,583

Los Angeles, CA 31,917 New York, NY 352,183

Phoenix, AZ 26,007 Chicago, IL 336,530

Houston, TX 24,618 Houston, TX 281,943

Brooklyn, NY 17,101 Las Vegas, NV 198,274

Flushing, NY 15,789 Miami, FL 195,326

Chicago, IL 14,851 Brooklyn, NY 185,960

Wilmington, DE 11,796 Dallas, TX 154,639

San Jose, CA 11,362 Philadelphia, PA 138,755

San Diego, CA 9,168 San Francisco, CA 138,217

Top Ten Currency Transaction 

Report by Casino 

Filing Locations

January 2004 to June 2005

Top Ten Form 8300 Filing Locations

January 2004 to June 2005

Casino City Count Business Location Cou

Las Vegas, NV 190,358 West Hempstead, NY 7,783

Atlantic City, NJ 93,280 Miami, FL 7,468

Uncasville, CT 26,072 New York, NY 5,930

Biloxi, MS 22,951 Long Island City, NY 3,889

Mashantucket, CT 17,098 Jersey City, NJ 3,254

Robinsonville, MS 16,721 Houston, TX 2,921

Reno, NV 16,153 Bronx, NY 2,749

Detroit, MI 15,269 Farmingdale, NY 2,691

Temecula, CA 12,778 Las Vegas, NV 2,384

Pala, CA 10,857 Des Moines, IA 2,255
65

APPENDIX B B

A P P E N D I X B

Top Ten Outbound CMIR Filing 

Locations

January 2004 to June 2005

Top Ten Inbound CMIR Filing

Locations

January 2004 to June 2005

Exported From 

City Count Imported To City Cou

New York, NY 4,255 Miami, FL 36,869

Los Angeles, CA 4,059 Los Angeles, CA 27,157

Miami, FL 3,354 New York, NY 10,119

Chicago, IL 1,911 San Francisco, CA 8,675

Atlanta, GA 1,901 Chicago, IL 5,970

Detroit, MI 1,868 Atlanta, GA 5,014

Hidalgo, TX 1,624 Houston, TX 4,663

Boston, MA 999 Detroit, MI 4,047

Houston, TX 944 Fort Lauderdale, FL 3,909

San Juan, PR 815 Washington, DC 3,833
66

B APPENDIX B

A P P E N D I X B 

149The violation type “Check Fraud” does not occur on the Money Services Business SAR form. 150The violation type “Credit/Debit Card Fraud” does not occur on the Money Services Business SAR form.

Top Five Suspicious Activity Report 

(All SAR Forms) Violation Types Grouped by Area

January 2004 to June 2005

BSA/Structuring/

Money Laundering Check Fraud149 Credit/Debit Card Fraud150

Filer City Count Filer City Count Filer City Co

New York, NY 60,802 Sioux Falls, SD 1,901 Phoenix, AZ 7,784

Los Angeles, CA 32,747 Chicago, IL 1,556 Wilmington, DE 4,870

Flushing, NY 30,768 New York, NY 1,477 Salt Lake City, UT 4,185

Houston, TX 23,258 Los Angeles, CA 948 Sioux Falls, SD 2,962

Phoenix, AZ 20,066 Houston, TX 695 New York, NY 1,862

Brooklyn, NY 18,294 Brooklyn, NY 549 Las Vegas, NV 1,281

Chicago, IL 10,307 Philadelphia, PA 515 Minneapolis, MN 1,184

Philadelphia, PA 9,845 Atlanta, GA 500 Milwaukee, WI 871

San Diego, CA 9,224 Las Vegas, NV 476 Omaha, NE 741

Newark, NJ 9,018 Dallas, TX 465 New Albany, OH 726

 BSA/Structuring/ Check Fraud149 Credit/Debit Card

Money Laundering Fraud150

Filer City Count Filer City Count Filer City Count

Check Fraud149
67

APPENDIX B B

A P P E N D I X B

Top Five Suspicious Activity Report

(All SAR Forms) Violation Types Grouped by Area

January 2004 to June 2005 (Continued)

Mortgage Loan Fraud151 Identity Theft152

Filer City DCN Count Filer City DCN C

Ann Arbor, MI 3,225 Wilmington, DE 8,670

San Francisco, CA 2,567 Salt Lake City, UT 5,512

Seattle, WA 2,346 Phoenix, AZ 5,191

Calabasas, CA 1,710 Sioux Falls, SD 3,400

New York, NY 1,331 Las Vegas, NV 1,746

Pasadena, CA 1,302 New York, NY 1,229

Miamisburg, OH 1,172 Draper, UT 801

West Hills, CA 1,000 Calabasas, CA 608

Littleton, CO 796 Glen Allen, VA 442

Charlotte, NC 750 Columbus, OH 411

151The violation type “Mortgage Loan Fraud” only occurs on the Depository Institution SAR form. BSA data relating to “Mortgage Loan 

fraud” only pertains to those SARs filed by Depository Institutions.

152The violation type “Identity Theft” only occurs on the Depository Institution SAR form and the Securities and Futures Industries SAR form. 

BSA data relating to “Identity Theft” only pertains to those SARs filed by Depository Institutions and the Securities and Futures Industries.

69

APPENDIX C C

A P P E N D I X C

Report Requirements Filed in CY 200

Currency 

Transaction 

Report (CTR)

Filed by financial institutions that engage in a currency transaction in excess 

of $10,000 13,115,305

Currency 

Transaction 

Report Casino 

(CTRC)

Filed by a casino to report currency transactions in excess of $10,000. 483,740

Report of Foreign 

Bank and Financial 

Accounts (FBAR)

Filed by individuals to report a financial interest in or signatory authority 

over one or more accounts in foreign countries, if the aggregate value of 

these accounts exceeds $10,000 at any time during the calendar year.

219,105

IRS Form 8300, 

Report of Cash 

Payments Over 

$10,000 Received 

in a Trade or 

Business

Filed by persons engaged in a trade or business who, in the course of that 

trade or business, receives more than $10,000 in cash in one transaction or 

two or more related transactions within a twelve month period.

152,683

Suspicious Activity 

Report (SAR)

Filed by depository institutions on transactions or attempted transactions 

involving at least $5,000 that the financial institution knows, suspects, or 

has reason to suspect:

involve money derived from illegal activities;

are intended or conducted in order to hide or disguise funds or 

assets derived from illegal activity;

are designed to evade BSA requirements or other financial reporting 

requirements (structuring); or

have no business or apparent lawful purpose. 

•

•

•

•

381,671

Suspicious Activity 

Report Casino 

(SARC)

Filed on transactions or attempted transactions conducted or attempted 

by, at, or through a casino/card club, and involving or aggregating at least 

$5,000 in funds or other assets, and the casino/card club knows, suspects, 

or has reason to suspect that the transactions or pattern of transactions:

involve money derived from illegal activities;

are intended or conducted in order to hide or disguise funds or 

assets derived from illegal activity;

are designed to evade BSA requirements or other financial reporting 

requirements (structuring); 

have no business or apparent lawful purpose; or

involve the use of the casino/card club to facilitate criminal activity. 

•

•

•

•

•

5,754

Report of 

International 

Transportation 

of Currency 

or Monetary 

Instruments (CMIR)

Filed by individuals or businesses who transport, or cause the transportation 

of, $10,000 or more in currency or other negotiable instruments into or out 

of the United States.

149,956 

Appendix C

BANK SECRECY ACT
70

C APPENDIX C

A P P E N D I X C 

Report Requirements Filed in CY 200

Registration of 

Money Services 

Business

Each money services business (MSB) must register except for (1) one that is 

a money services business solely because it serves as an agent of another 

MSB, (2) the U.S. Postal Service, and (3) issuers, sellers, and redeemers of 

stored value.

10,254

Suspicious 

Activity Report by 

Money Services 

Businesses (SARMSB)

Filed on transactions or attempted transactions conducted or attempted by, 

at, or through an MSB, and involving or aggregating funds or other assets 

of at least $2,000 in funds or other assets, and the MSB knows, suspects, or 

has reason to suspect that the transactions or pattern of transactions:

• involve money derived from illegal activities;

• are intended or conducted in order to hide or disguise funds or 

assets derived from illegal activity;;

• are designed to evade BSA requirements or other financial reporting 

requirements (structuring); 

• have no business or apparent lawful purpose; or

• involve the use of the MSB to facilitate criminal activity. 

When transactions are identified from a review of records of money orders 

or traveler’s checks that have been sold or processed, an issuer of money 

orders of traveler’s checks shall be required to report a transaction or a 

pattern of transactions that involves or aggregates funds or other assets of 

at least $5,000.

296,284

Suspicious Activity 

Report by the 

Securities & 

Futures Industries 

(SAR-SF)

Filed on transactions, or attempted transactions, if it is conducted by, at, 

or through a broker-dealer, a futures commission merchant (FCM), or an 

introducing broker in commodities (IB-C) and it involves or aggregates funds 

or other assets of at least $5,000, and the broker-dealer/FCM/IB-C knows, 

suspects, or has reason to suspect that the transaction involves funds 

derived from illegal activities, is intended or conducted in order to hide or 

disguise funds or assets derived from illegal activity, is designed to evade 

BSA requirements (structuring), has no business or apparent lawful purpose, 

or involves use of the broker-dealer/FCM/IB-C to facilitate criminal activity. 

Also filed when transactions are designed, whether through structuring or 

other means, to evade filing requirements. Also filed when a transaction 

has no business or apparent lawful purpose or is not the sort in which 

the particular customer would normally be expected to engage, and the 

broker-dealer knows of no reasonable explanation for the transaction after 

examining the available facts. Also filed when the transaction involves the 

use of the broker-dealer to facilitate criminal activity.

5,705

Designation of 

Exempt Person

Used by bank or other depository institution to designate an eligible 

customer as an exempt person from currency transaction reporting rules. 67,935

 Source: FinCEN
71

APPENDIX D D

A P P E N D I X D

Appendix D

Sttus ofBSA

A QUICK GUIDE TO THE STATUS OF BANK SECRECY ACT (BSA)/  USA PATRIOT ACT REGULATIONS FOR FINANCI

INSTITUTIONS IN THE U.S (as of December 2005)

Type of 

Institution

Subject to the 

BSA Rules

(Other than 

Form 8300)

Requirements

Must 

have 

an AML 

Program

Must file 

SARs

Must 

file 

CTR’s

Must file 

8300s

Must have 

a Customer

Identification 

Program (CIP)

MSBs153 Yes

Title 31 CFR § § [103.11, 

20, 22, 23, 24, 25, 27, 28, 

29, 33, 37, 41, and 125]

Yes Yes154 Yes No No

Banks Yes

Title 31 CFR § § [103.11, 

18, 22, 23, 24, 25, 26, 27, 

28, 33, 120, 177, 181 and 

183]

Yes Yes Yes No Yes

Insurance 

Companies Yes Title 31 CFR 103.137; 31 CFR 103.16 Yes Yes No Yes No

Securities 

BrokerDealersYes

Title 31 CFR § § [103.11, 

19, 23, 24, 35, 120 and 

122]

Yes Yes Yes No Yes

Travel 

Agencies

Currently 

exempt under 

31 CFR § 

103.170.

An ANPRM155 was issued

on February 24, 2003. No No No Yes No

Investment 

Advisers

Currently 

exempt under 

31 CFR § 

103.170

Proposed AML Rule at 68 

FR 23640 (May 5, 2003). No No No Yes No

Pawn Brokers

Currently 

exempt under 

31 CFR § 

103.170.

Proposed rules in 

preparation. No No No Yes No

Futures 

Commission 

Merchants 

and 

Introducing 

BrokersCommodities 

Yes

Title 31 CFR § § [103.11, 

17, 22, 23, 24, 27, 120 

and 123].

Yes Yes Yes No Yes

153The following are defined as MSBs: check cashers who conduct transactions in amounts over $1,000 per person per day, currency dealers or 

exchangers who conduct transactions in amounts over $1,000 per person per day, issuers of traveler’s checks, money orders and stored value 

who conduct transactions in amounts over $1,000 per person per day, sellers or redeemers of traveler’s checks, money orders or stored value 

who conduct transactions in amounts over $1,000 per person per day, money transmitters, and USPS. 154 Only certain MSBs must file SARs. These include money transmitters, currency dealers or exchangers, money order - issuers, sellers, or 

redeemers, traveler’s check-issuers, sellers, or redeemers, and USPS.

155 Advanced Notice of Proposed Rulemaking (ANPRM) is a means to seek comment and specific data from stakeholders and the public on 

important complex or controversial issues prior to issuance of a notice of proposed rulemaking. No regulatory text is required.
72

D APPENDIX D

A P P E N D I X D 

A QUICK GUIDE TO THE STATUS OF BANK SECRECY ACT (BSA)/  USA PATRIOT ACT REGULATIONS FOR FINANCI

INSTITUTIONS IN THE U.S (as of December 2005)

Type of 

Institution

Subject to the 

BSA Rules

(Other than 

Form 8300)

Requirements

Must 

have 

an AML 

Program

Must file 

SARs

Must 

file 

CTR’s

Must file 

8300s

Must have 

a Customer

Identification 

Program (CIP)

Unregistered 

Investment 

Companies

Currently 

exempt under 

31 CFR § 

103.170.

Proposed AML Rule at 67 

Fed. Reg. 60617 (Sept. 26, 

2002)

No No No Yes No

Mutual Funds Yes

Title 31 CFR § § 103. 23, 

24, 130 and 131

Proposed SAR Rule at 68 

Fed. Reg. 2716 (Jan. 21, 

2003).

Yes No No Yes Yes

Loan and 

Finance 

Companies

Currently 

exempt under 

31 CFR § 

103.170.

Proposed rules in 

preparation. No No No Yes No

Dealers in 

Precious 

Metals, 

Stones or 

Jewels

Yes 31 CFR § 103.23, 24, 140 Yes No No Yes No

Credit Card 

System 

Operators

Yes 31 CFR § 103.135 Yes No No Yes No

Businesses 

Engaged in 

Vehicle Sales

Currently 

exempt under 

31 CFR § 

103.170.

An ANPRM was issued 

at 68 FR 8568 (Feb. 24, 

2003).

No No No Yes No

Casinos Yes

Title 31 CFR § § [103.11, 

21, 22, 23, 24, 36 and 

120].

Yes Yes Yes No Yes

Persons 

involved in 

Real Estate 

Closings and 

Settlements 

Currently 

exempt under 

31 CFR § 

103.170.

An ANPRM was issued at 

68 FR 17569 (April 10, 

2003).

No No No Yes No

Telegraph 

Companies

Currently 

exempt under 

31 CFR § 

103.170.

No No No Yes No

Commodity 

Trading 

Advisors

Currently 

exempt under 

31 CFR § 

103.170.

Proposed AML Rule at 68 

FR 23640 (May 5, 2003). No No No Yes No

Investment 

Companies 

(other than 

mutual 

funds)

Currently 

exempt under 

31 CFR § 

103.170.

No No No Yes No