Money Laundering:


A Banker’s Guide to 

Avoiding Problems 

Office of the Comptroller of the Currency


Washington, DC


December 2002


This booklet updates and expands upon the Office of the 

Comptroller of the Currency’s (OCC’s) prior publication, Money 

Laundering: A Banker’s Guide to Avoiding Problems (second 

edition June 1993). This revision was prompted by the growing 

sophistication of money launderers, a growing international 

response to money laundering, changes to anti-money laundering 

laws, and recent anti-terrorist financing legislation. 

This booklet presents basic background information on U.S. 

money-laundering laws and international anti-money laundering 

efforts. It also discusses actions bankers can take to better identify 

and manage risks associated with money laundering and terrorist 

financing. It is intended to provide a high-level discussion of 

concepts and issues. More detail on the subjects discussed may be 

obtained by using the listing of materials and organizations in the 

“Where to Get More Information” section. 
Introduction

Over the past several years the banking industry, financial 

institutions, and the financial services industry have 

made significant strides in money laundering detection 

and prevention. However, they continue to be vulnerable to 

misuse by criminal elements for laundering illegally obtained 

profits and funds intended to finance terrorist activities. 

Money-laundering methods have become more creative since 

the 1989 and 1993 versions of this booklet were published. This 

is due to the expansion of products and services offered, more 

complicated financial relationships, advances in technology, 

and the increased velocity of money flows worldwide. Terrorist 

financing, although only one aspect of money laundering, has 

become a critical concern following the events of September 11, 

2001. The Office of the Comptroller of the Currency requires 

regulated institutions to develop and implement effective antimoney laundering programs that encompass terrorist financing. 

This has included record searches against U.S. government lists 

of suspected terrorists and terrorist organizations. The USA 

PATRIOT Act

1

 contains provisions to combat international 

terrorism and block terrorist access to the U.S. financial system. 

Several international organizations have also issued measures to 

curb money laundering and terrorist financing. 

1

 USA PATRIOT Act is the short name for H.R. 3162, entitled “The Uniting 

and Strengthening America by Providing Appropriate Tools Required to 

Intercept and Obstruct Terrorism.” Title III of the Act is the International 

Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. 

2 Introduction
Background

Money laundering is the criminal practice of filtering 

ill-gotten gains or “dirty” money through a series of 

transactions, so that the funds are “cleaned” to look 

like proceeds from legal activities. Money laundering is driven 

by criminal activities and conceals the true source, ownership, 

or use of funds. The International Monetary Fund has stated 

that the aggregate size of money laundering in the world could 

be somewhere between 2 and 5 percent of the world’s gross 

domestic product. 

Money laundering is a diverse and often complex process that 

need not involve cash transactions. Money laundering basically 

involves three independent steps that can occur simultaneously: 

• 	 Placement - placing, through deposits or other means, 

unlawful proceeds into the financial system. 

• 	 Layering - separating proceeds of criminal activity from 

their origin through the use of layers of complex financial 

transactions. 

• 	 Integration - using additional transactions to create the 

appearance of legality through the purchase of assets. 

An effective anti-money laundering program will help minimize 

exposure to transaction, compliance, and reputation risks. Such 

a program should include account opening controls and the 

monitoring and reporting of suspicious activity. Identifying 

possible terrorist financing may be a more difficult endeavor, 

since transactions may originate from legitimate sources and 

involve relatively small amounts of money. 

Background 3
Anti-Money Laundering and Anti-Terrorist 

Financing Legislation 

Bank Secrecy Act and Related Anti-Money Laundering Laws 

The U.S. has imposed many legislative and regulatory 

standards to help deter money laundering. The most 

significant of these are: the Bank Secrecy Act (Currency 

and Foreign Transactions Reporting Act of 1970); the Money 

Laundering Control Act of 1986; the Anti-Drug Abuse Act of 

1988; Section 2532 of the Crime Control Act of 1990; Section 

206 of the Federal Deposit Insurance Corporation Improvement 

Act of 1991; the Annunzio-Wylie Anti-Money Laundering Act 

(Title XV of the Housing and Community Development Act of 

1992); the Money Laundering Suppression Act of 1994 (Title 

IV of the Riegle-Neal Community Development and Regulatory 

Improvement Act of 1994); the Money Laundering and 

Financial Crimes Strategy Act of 1998; and the USA PATRIOT 

Act (Title III, International Money Laundering Abatement 

and Anti-Terrorist Financing Act of 2001). Following are 

descriptions of these legislative measures. 

The Bank Secrecy Act (BSA) was designed to fight drug 

trafficking, money laundering, and other crimes. Congress 

enacted the BSA to help prevent banks and other financial 

service providers from being used as intermediaries for, or 

being used to hide the transfer or deposit of money derived 

from, criminal activity. Among other items, the BSA created 

an investigative “paper trail” by establishing regulatory 

reporting standards and requirements (e.g., the Currency 

Transaction Report), and, through a later amendment, established 

recordkeeping requirements for wire transfers. The OCC 

monitors national bank compliance with the BSA and the 

implementing regulations 31 CFR 103. 

The Money Laundering Control Act of 1986 amended the BSA 

to enhance its effectiveness and to strengthen the government’s 

ability to fight money laundering by making it a federal crime 

and by making structuring transactions to avoid BSA reporting 

requirements a criminal offense. 

4 Anti-Money Laundering 
The Anti-Drug Abuse Act of 1988 reinforced and supplemented 

anti-money laundering efforts by increasing the levels of 

penalties and sanctions for money laundering crimes and 

by requiring strict identification and documentation of cash 

purchases of certain monetary instruments. 

Section 2532 of the Crime Control Act of 1990 enhanced 

the federal banking agencies enforcement position by giving 

it powers to work with foreign banking authorities on 

investigations, examinations, or enforcement actions dealing 

with possible bank or currency transaction-related violations. 

Section 206 of The Federal Deposit Insurance Corporation 

Improvement Act (FDICIA) of 1991 allowed the OCC and 

other bank supervisory authorities some latitude in disclosing to 

foreign bank regulatory or supervisory authorities information 

obtained during its supervisory role. Such disclosure must be 

appropriate, not prejudice the interests of the U.S., and must be 

subject to appropriate measures of confidentiality. 

The Annunzio-Wylie Anti-Money Laundering Act of 1992 

increased penalties for depository institutions found guilty of 

money laundering. The act added several significant provisions 

to the BSA, including the reporting of suspicious transactions. 

The act also made the operation of an illegal money transmitting 

business a crime, and required that banking regulatory agencies 

formally consider revoking the charter of any depository 

institution convicted of money laundering. 

The Money Laundering Suppression Act of 1994 required 

regulators to develop enhanced examination procedures and 

to increase examiner training to improve the identification of 

money laundering schemes in financial institutions. 

The Money Laundering and Financial Crimes Strategy Act 

of 1998 required the Secretary of the Treasury, in consultation 

with the Attorney General and other relevant agencies, including 

state and local agencies, to coordinate and implement a national 

strategy to address money laundering. 

The USA PATRIOT Act evolved as a response by the U.S. 

government to combat international terrorism. The act contained 

Anti-Money Laundering 5
strong measures to prevent, detect, and prosecute terrorism and 

international money laundering. Signed into law on October 26, 

2001, the act establishes new rules and responsibilities affecting 

U.S. banking organizations, other financial institutions, and nonfinancial commercial businesses. The act: 

• 	 Provides the Secretary of the Treasury with the authority 

to impose special measures on jurisdictions, institutions, 

or transactions that are of “primary money-laundering 

concern.” 

• Requires financial institutions to increase their due 

diligence standards when dealing with foreign private 

banking and correspondent accounts. 

• 	 Prohibits correspondent accounts with foreign “shell” 

banks. 

• 	 Expands the ability of the public and private sectors 

to share information related to terrorism and money 

laundering investigations. 

• 	 Facilitates records access and requires banks to respond to 

regulatory requests for information within 120 hours. 

• 	 Establishes minimum standards for customer identification 

at account opening and requires checks against 

government-provided lists of known or suspected terrorists. 

• 	 Requires regulatory agencies to evaluate an institution’s 

anti-money laundering record when considering bank 

mergers, acquisitions, and other applications for business 

combinations. 

• 	 Extends an anti-money laundering program requirement to 

all financial institutions. 

• 	 Increases the civil and criminal penalties for money 

laundering. 

6 Anti-Money Laundering
International Anti-Money Laundering and 

Anti-Terrorist Financing Initiatives 

The international community has long recognized that 

the problems of money laundering and terrorism require 

a coordinated approach. For many years, a number 

of international organizations have developed standards for 

combating money laundering, terrorism, and terrorist financing. 

These standards contain common themes of promoting actions 

to deny criminals, terrorists, and those who assist them access 

to their funds and the world’s financial services industries. 

Many international agreements and resolutions outline similar 

standards or build upon each other. 

The Financial Action Task Force on Money Laundering (FATF) 

is an important inter-governmental body that develops and 

promotes policies to combat money laundering. It focuses on: 

• 	 Spreading the anti-money laundering message to all 

continents and regions of the globe. 

• 	 Monitoring the implementation of its Forty 

Recommendations. 

• 	 Reviewing and publishing money laundering trends and 

countermeasures (“typologies exercise”). 

FATF fosters the creation of a worldwide anti-money laundering 

network based on the development of regional anti-money 

laundering bodies, close co-operation with relevant international 

organizations, and expansion of its membership. FATF’s Forty 

Recommendations set a framework for anti-money laundering 

efforts and are designed for universal application. Initially 

developed in 1990, they were revised in 1996 to take into 

account changes in money laundering trends and to anticipate 

potential threats. Currently, the FATF is working on another 

update to their Forty Recommendations. 

An Extraordinary Plenary held in Washington, D.C., in October 

2001 formally broadened FATF’s mission beyond anti-money 

laundering to include anti-terrorist financing. FATF developed 

an action plan to address terrorist financing and issued new 

Anti-Money Laundering 7 
international standards called the Special Recommendations 

on Terrorist Financing. In implementing the new action 

plan, FATF will intensify its cooperation with the FATF-style 

regional bodies and international organizations that support and 

contribute to the international effort against money laundering 

and terrorist financing. FATF also agreed to consider the Special 

Recommendations as it revises its Forty Recommendations 

on Money Laundering and to intensify its work on corporate 

vehicles, correspondent banking, identification of beneficial 

owners of accounts, and regulation of nonbank financial 

institutions. 

FATF has formulated additional guidance on the techniques 

and mechanisms used in the financing of terrorism. FATF’s 

“Report on Money Laundering Typologies Report 2001-2002” 

and “Guidance for Financial Institutions in Detecting Terrorist 

Financing” were issued in February 2002 and April 2002, 

respectively. 

8 Anti-Money Laundering 
What Bankers Can Do To Help

This section highlights fundamental controls that are 

important for effective anti-money laundering systems 

and legal compliance. These controls include effective 

BSA compliance and customer due diligence programs, 

compliance with Office of Foreign Assets Control (OFAC) 

guidelines, suspicious activity monitoring and reporting systems, 

and risk-based anti-money laundering programs. 

Establish Effective BSA Compliance Programs 

Banks must have a BSA compliance program. National banks, 

as outlined in 12 CFR 21.21, must develop, administer, and 

maintain a program that ensures and monitors compliance with 

the BSA, including record keeping and reporting requirements. 

A bank’s compliance program must be written, approved by 

the board of directors, and noted as such in the board meeting 

minutes. The program must also contain: 

• 	 A system of internal controls to ensure ongoing BSA 

compliance. 

• 	 Daily coordination and monitoring of compliance by a 

designated person. 

• Training for appropriate personnel. 

• 	 Independent testing of compliance (by internal auditors or 

an outside party). 

Establish Effective Customer Due Diligence Systems 

and Monitoring Programs 

Comprehensive customer due diligence programs are banks’ 

most effective weapons against being used unwittingly to 

launder money or to support terrorist financing. Knowing 

customers, including depositors and other users of bank 

services, requiring appropriate identification, and being alert 

to unusual or suspicious transactions can help deter and detect 

money laundering and terrorist financing schemes. Effective 

due diligence systems are also fundamental to help ensure 

compliance with suspicious activity reporting regulations. 

What Bankers Can Do 9 
These regulations require banks to report transactions that have 

no apparent lawful purpose or are not the sort in which the 

particular customer would be expected to engage. 

The first and most essential step in effective customer due 

diligence is verifying the identity of the customer. Present 

guidelines for the opening of personal accounts include: obtain 

satisfactory customer identification; consider the proximity 

of the customer’s residence or place of business; call-verify 

the customer’s residence or place of employment; consider 

the source of funds used to open the account; and check prior 

banking references for larger accounts. Additional steps may 

include third-party references, verification services, and the use 

of Internet search techniques. In addition to verifying the legal 

status of businesses opening accounts, bankers should determine 

the source of funds and the beneficial owners of all accounts. 

The existence of most businesses can be verified through an 

information-reporting agency, banking references, or by visiting 

the customer’s business. 

The USA PATRIOT Act addresses several aspects of due 

diligence at account opening. 

• Verification of Identification - Prescribes minimum 

standards that financial institutions must follow to verify 

the identity of both foreign and domestic customers at 

account opening. Financial institutions must consult 

U.S. government-provided lists of known or suspected 

terrorists or terrorist organizations and keep records of the 

information used to verify each customer’s identity. 

• 	 Special Due Diligence for Correspondent and Private 

Banking Accounts - Sets forth general due diligence 

standards and provides additional standards for certain 

correspondent accounts and minimum standards for private 

banking accounts of non-U.S. persons. 

Once the bank has established a customer relationship, it 

should be alert for unusual transactions. Although attempts to 

launder money through a financial institution can emanate from 

many different sources, certain products and services, types of 

10 What Bankers Can Do 
entities, and geographic locations are more vulnerable to money 

laundering and/or terrorist financing. Accordingly, greater due 

diligence standards should occur for higher risk relationships, 

both at the account opening and ongoing account activity stages. 

Screen Against OFAC and Other Government Lists 

OFAC administers and enforces economic and trade sanctions 

against targeted foreign countries, terrorism-sponsoring 

organizations, and international narcotics traffickers based on 

U.S. foreign policy and national security goals. OFAC acts 

under presidential wartime and national emergency powers and 

the authority granted by specific legislation to impose controls on 

transactions and to freeze foreign assets under U.S. jurisdiction. 

Many of the sanctions are based on United Nations and other 

international mandates, are multilateral in scope, and involve 

close cooperation with allied countries. OFAC has promulgated 

regulations to help administer its sanctions program. All U.S. 

persons and entities, including banks, federal branches and 

agencies, international banking facilities, and overseas branches, 

offices and subsidiaries of U.S. banks must comply with the laws 

and OFAC-issued regulations. In general, these regulations: 

• 	 Require blocking of accounts and other assets of specified 

countries, entities, and persons. 

• 	 Prohibit unlicensed trade and financial transactions with 

specified countries, entities, and persons. 

U.S. law requires that assets and accounts be blocked when such 

property is located in the United States, is held by U.S. persons 

or entities, or comes into the possession or control of U.S. 

persons or entities. The definition of assets and property is broad 

and includes anything of direct, indirect, present, future, and 

contingent value (including all types of bank transactions). 

Banks should establish and maintain effective OFAC compliance 

programs. This program should include written policies 

and procedures for checking transactions for possible OFAC 

violations, designating a person responsible for day-to-day 

compliance, establishing and maintaining strong lines of 

What Bankers Can Do 11 
communication between departments of the bank, employee 

training, and an annual in-depth audit of OFAC compliance. 

The compliance program should also include procedures for 

maintaining current lists of blocked countries, entities, and 

persons and for disseminating such information throughout 

the bank’s domestic operations and its offshore branches and 

offices. All new accounts, including deposit, loan, trust, or 

other relationships must be compared with the OFAC lists when 

accounts are opened. Established accounts should be compared 

regularly with the current and updated OFAC lists. Wire 

transfers, letters of credit, and non-customer transactions, such as 

funds transfers, should be compared with the OFAC lists before 

being conducted. 

Federal law enforcement may request information about 

suspected terrorists and money launderers relevant to 

investigations. Bankers must review their records for accounts 

and transactions and notify the Financial Crimes Enforcement 

Network (FinCEN) of any “matches” in accordance with the 

instructions provided. 

Establish an Effective Suspicious Activity Monitoring 

and Reporting Process 

An effective BSA compliance program includes controls and 

measures to identify and report suspicious transactions promptly. 

Financial institutions must employ appropriate customer due 

diligence to effectively evaluate transactions and conclude 

whether to file a suspicious activity report (SAR). 

Banks must file SARs within prescribed timeframes. SARs 

must be filed following the discovery of transactions aggregating 

$5,000 or more that involve potential money laundering or 

violations of the BSA if the bank knows, suspects, or has reason 

to suspect that the transaction: 

• 	Involves funds from illegal activities or is conducted to 

hide illicit funds or assets in a plan to violate or evade 

any law or regulation or to avoid transaction reporting 

requirements under federal law. 

12 What Bankers Can Do 
• Is designed to evade any of the BSA regulations. 

• 	 Has no business or apparent lawful purpose or is not the 

sort in which the customer would normally be expected to 

engage, and the bank knows of no reasonable explanation 

for the transaction after examining available facts, 

including the background and transaction purpose. 

The bank’s board of directors must be notified of SAR filings, 

and such filings and information contained therein must remain 

confidential, unless properly requested by law enforcement. 

Financial institutions are protected from liability to customers 

for disclosures of possible violations of law under safe harbor 

provisions. Additionally, the safe harbor covers all reports 

(including supporting SAR documentation) of suspected or 

known criminal violations and suspicious activities to law 

enforcement and the financial institution’s supervisory authority. 

There are more than 200 predicate crimes for money laundering. 

These include funds that support terrorist activity, profits from 

illegal drug sales, and structuring of transactions to avoid record 

keeping and reporting requirements. A bank does not have to 

conduct an investigation to determine if funds were derived 

illegally. Instead, banks must report suspicious activity. Law 

enforcement will determine if a predicate crime associated with 

the funds has been violated. 

Develop Risk-Based Anti-Money Laundering Programs 

Bank anti-money laundering programs should be structured 

to address the controls needed based on the risks posed by 

the products and services offered, customers served, and 

geographies. The following are examples of high-risk products 

and services, customers, and geographic locations of which 

banks should be aware when developing a risk-based anti-money 

laundering program. 

What Bankers Can Do 13
High-Risk Products and Services 

Wire Transfer/International Correspondent Banking -

Money launderers have become more creative in their use of 

wire transfer systems, particularly relating to correspondent 

bank accounts. Correspondent accounts are accounts banks 

maintain with each other to facilitate transactions for themselves 

and their customers. Although these accounts were developed 

and are used primarily for legitimate purposes, international 

correspondent bank accounts may pose increased risk of illicit 

activities. The Minority Staff of the U.S. Senate Permanent 

Subcommittee on Investigations issued a report on February 

5, 2001, entitled “Correspondent Banking and Money 

Laundering.” The report summarizes a year-long investigation 

into correspondent banking and its use as a tool for laundering 

money. The investigation found that U.S. banks through 

international correspondent accounts could become conduits for 

dirty money flowing into the American financial system. 

Bankers must exercise due diligence in determining risks 

associated with each of their foreign correspondent accounts. 

Factors to consider include account purpose, location of the 

foreign bank, nature of the banking license, the correspondent’s 

money laundering detection and prevention controls, and the 

extent of bank regulation and supervision in the foreign country. 

The USA PATRIOT Act also requires the maintenance of certain 

records for foreign correspondent accounts, mandates enhanced 

due diligence for select accounts, and precludes maintaining 

correspondent accounts for “shell” banks. 

Private Banking Relationships - Private banking has many 

definitions, but generally is considered the personal or discreet 

offering of a wide variety of financial services and products 

to the affluent market. These operations typically offer allinclusive personalized services. Individuals, commercial 

businesses, law firms, investment advisors, trusts, and personal 

investment companies may open private banking accounts. Due 

diligence for private banking clients usually includes a more 

extensive process than for retail customers, including confirming 

references and/or conducting background checks. It is critical 

14 What Bankers Can Do 
to understand a client’s source of wealth, needs, and expected 

transactions. The private banking client’s expected level and 

type of transactions should be documented. Private banking 

relationships can be complex and systems to monitor and report 

suspicious activity should be designed to reasonably evaluate the 

client’s total activities. 

Senior foreign public officials are often private banking 

clients. In January 2001, “Guidance on Enhanced Scrutiny 

for Transactions that May Involve the Proceeds of Foreign 

Official Corruption” was issued by the Department of Treasury, 

the Office of the Comptroller of the Currency, the Office of 

Thrift Supervision, the Board of Governors of the Federal 

Reserve System, the Federal Deposit Insurance Corporation, 

and the Department of State. The guidance contains suggested 

procedures for account opening and monitoring for persons 

known to be senior foreign political figures, their immediate 

family members and their close associates. It also contains a 

list of questionable or suspicious activities that may warrant 

enhanced scrutiny of transactions involving such persons. 

In addition, the USA PATRIOT Act requires enhanced due 

diligence and scrutiny for private banking accounts requested or 

maintained by senior foreign political figures, their immediate 

family members, and their close associates. U.S. financial 

institutions should apply these principles and requirements to 

private banking activities and accounts. 

Electronic Banking - Electronic banking is a broad term 

encompassing delivery of information, products, and services by 

electronic means (such as telephone lines, personal computers, 

automated teller machines, and automated clearing houses). This 

product offering continues to grow at a rapid pace. Although the 

extent of services varies, typical Internet bank services include 

credit cards, loans, deposits, wire transfers, and bill-paying 

services. Electronic banking is vulnerable to money laundering 

and terrorist financing because of its user anonymity, rapid 

transaction speed, and its wide geographic availability. 

What Bankers Can Do 15
High-Risk Customers 

Certain kinds of businesses may require enhanced customer due 

diligence at account opening and ongoing transaction review. 

Banks should conduct a risk assessment and ensure that controls 

are proportionate to the customer’s risk level. The following 

should be considered when doing business with high-risk 

customers: their anti-money laundering systems; potential for 

being abused by money launderers; their level of risk; and the 

bank’s ability to control that risk. Entities that traditionally have 

been identified as high-risk include: 

• 	 Nonbank Financial Institutions (NBFI), including Money 

Service Businesses - Typical examples include security 

brokers and dealers, check-cashing services, currency 

dealers and exchangers, and issuers, sellers, or redeemers 

of traveler’s checks, money orders, or stored value cards. 

Card clubs, gambling casinos, and money transmitters are 

also NBFIs. 

• 	 Non-governmental organizations (e.g. charitable 

organizations). 

• 	 Offshore corporations, bearer share corporations, and banks 

located in tax and/or secrecy havens and jurisdictions 

designated as non-cooperative in the fight against money 

laundering. 

• 	 Cash-intensive businesses (convenience stores, parking 

garages, restaurants, retail stores). 

High-Risk Geographic Locations 

Identifying high-risk geographic locations is essential to a bank’s 

anti-money laundering program. U.S. banks should understand 

and evaluate the specific risks associated with doing business in, 

opening accounts for customers from, or facilitating transactions 

involving high-risk geographic locations. Information regarding 

possible high-risk geographic locations is available from several 

sources including: 

16 What Bankers Can Do 
• Jurisdictions identified by intergovernmental organizations 

(e.g., FATF) as non-cooperative in the fight against money 

laundering. Such locations have become widely known as 

non-cooperative countries and territories (NCCT). 

• Countries/jurisdictions identified by the U.S. Department 

of State’s annual International Narcotics Control Strategy 

Report (INCSR) as “primary concern.” 

• Geographies identified by OFAC. 

• 	 Jurisdictions designated by the Secretary of the Treasury as 

being of primary money laundering concern as authorized 

by the USA PATRIOT Act. 

• Jurisdictions identified by bank management. 

Identifying customers and transactions from high-risk geographic 

locations is crucial in controlling money laundering and terrorist 

financing risk. By obtaining such information, bankers can 

develop or modify policies, procedures, and controls addressing 

the risks associated with those locations. 

What Bankers Can Do 17
What Bankers Should Look For 

The following are examples of potentially suspicious 

activities or “red flags” for both money laundering and 

terrorist financing. These lists are not all-inclusive, but 

may help bankers recognize possible money laundering and 

terrorist financing schemes. Banks should be focused primarily 

on reporting suspicious transactions, not on determining that the 

transactions are in fact linked to money laundering or terrorist 

financing. 

The examples mentioned may warrant attention, but simply 

because a transaction appears on the list does not mean it 

involves suspicious activity. Closer scrutiny will help determine 

whether the transactions or activities reflect suspicious activities 

rather than legitimate business activities and whether a SAR 

should be filed. 

Money Laundering Red Flags 

Customers Who Provide Insufficient or Suspicious 

Information 

• 	 A customer uses unusual or suspicious identification 

documents that cannot be readily verified. 

• 	 A business is reluctant, when establishing a new account, 

to provide complete information about the nature and 

purpose of its business, anticipated account activity, prior 

banking relationships, names of its officers and directors, or 

information on its business location. 

• A customer’s home/business telephone is disconnected. 

• 	 The customer’s background differs from that which would 

be expected based on his or her business activities. 

• 	 A customer makes frequent or large transactions and has no 

record of past or present employment experience. 

18 What Bankers Should Look For 
Efforts to Avoid Reporting or Record Keeping 

Requirement 

• 	 A customer or group tries to persuade a bank employee to 

not file required reports or to not maintain required records. 

• 	 A customer is reluctant to provide information needed 

to file a mandatory report, to have the report filed, or to 

proceed with a transaction after being informed that the 

report must be filed. 

• 	 A customer is reluctant to furnish identification when 

purchasing negotiable instruments in recordable amounts. 

• 	 A business or new customer asks to be exempted from 

reporting or record-keeping requirements. 

• 	 A customer uses the automated teller machine to make 

several bank deposits below a specified threshold. 

Certain Funds Transfer Activities 

• 	 Wire transfer activity to/from a financial secrecy haven, or 

high-risk geographic location without an apparent business 

reason, or when it is inconsistent with the customer’s 

business or history. 

• 	 Many small, incoming wire transfers of funds received, 

or deposits made using checks and money orders. Almost 

immediately, all or most are wired to another city or 

country in a manner inconsistent with the customer’s 

business or history. 

• 	 Large incoming wire transfers on behalf of a foreign client 

with little or no explicit reason. 

• 	 Wire activity that is unexplained, repetitive, or shows 

unusual patterns. 

• 	 Payments or receipts with no apparent links to legitimate 

contracts, goods, or services. 

What Bankers Should Look For 19
Activity Inconsistent with the Customer’s Business 

• 	 The currency transaction patterns of a business show a 

sudden change inconsistent with normal activities. 

• 	 A large volume of cashier’s checks, money orders, and/or 

wire transfers deposited into, or purchased through, an 

account when the nature of the account holder’s business 

would not appear to justify such activity. 

• 	 A retail business has dramatically different patterns of 

cash deposits from similar businesses in the same general 

location. 

• 	 Unusual transfer of funds among related accounts, or 

accounts that involve the same or related principals. 

• 	 The owner of both a retail business and a check-cashing 

service does not ask for cash when depositing checks, 

possibly indicating the availability of another source of 

cash. 

Other Suspicious Customer Activity 

• 	 Frequent exchanges of small dollar denominations for large 

dollar denominations. 

• 	 Frequent deposits of currency wrapped in currency straps 

or currency wrapped in rubber bands that are disorganized 

and do not balance when counted. 

• 	 A customer who purchases a number of cashier’s checks, 

money orders, or traveler’s checks for large amounts under 

a specified threshold. 

• 	 Money orders deposited by mail, which are numbered 

sequentially or have unusual symbols or stamps on them. 

• 	 Suspicious movements of funds from one bank into 

another, then back into the first bank: 1) purchasing 

cashier’s checks from bank A; 2) opening up a checking 

account at bank B; 3) depositing the cashier’s checks into 

a checking account at bank B; and, 4) wire transferring the 

20 What Bankers Should Look For 
funds from the checking account at bank B into an account 

at bank A. 

Changes in Bank-to-Bank Transactions 

• A rapid increase in the size and frequency of cash deposits 

with no corresponding increase in non-cash deposits. 

• Inability to track the true account holder of correspondent 

or concentration account transactions. 

• Significant turnover in large denomination bills that would 

appear uncharacteristic given the bank’s location. 

• Significant changes in currency shipment patterns between 

correspondent banks. 

Bank Employees 

• Lavish lifestyle that cannot be supported by an employee’s 

salary. 

• Failure to conform with recognized systems and controls, 

particularly in private banking. 

• Reluctance to take a vacation. 

Terrorist Financing Red Flags 

Identifying suspicious transactions that may be indicative of 

terrorist financing is a relatively new and difficult endeavor. 

Traditionally, anti-money laundering programs have focused on 

large, suspicious cash and non-cash transactions, both domestic 

and international. Terrorist financing may also involve smaller 

dollar amounts entering the country, and the funds may often 

be used in typical retail consumer activity. The risk of terrorist 

financing may exist in a variety of bank products and services. 

The risk of this activity may be higher in larger institutions and 

domestic branches of foreign banks, because of the international 

nature of their businesses, and size and breadth of their 

international branch and affiliate networks. 

What Bankers Should Look For 21
Banks should use recently published terrorist financing guidance 

when developing risk-based anti-money laundering programs. 

Recent publications that shed light on terrorist financing include 

the FATF Report on Money Laundering Typologies,2 FATF 

Guidance for Financial Institutions in Detecting Terrorist 

Financing Activities, the FinCEN SAR Bulletin Issue 4, 

“Aspects of Financial Transactions Indicative of Terrorist 

Funding” published January 2002, and the 2002 National Money 

Laundering Strategy. 

The FATF Guidance discusses similar methods of laundering 

funds by terrorist organizations and organized crime, though 

their motives may differ. The report also notes that terrorist 

groups have increasingly resorting to criminal activity to raise 

funds. With the exception of three activities, there is little 

difference in the funding sources currently used by terrorists and 

organized crime groups. The three funding activities distinct to 

terrorism include: 

• Direct sponsorship by certain states. 

• Contributions and donations. 

• Sale of publications (legal and illegal). 

FinCEN’s SAR Bulletin Issue 4 contains a number of “red 

flags.” Many are similar to the money laundering red flags listed 

previously; however, some are indicative of terrorist financing. 

They are: 

• Funds generated by a business owned by nationals of 

countries associated with terrorist activity. 

• Charity/relief organization-linked transactions. 

• Currency exchange buying/selling foreign currencies from 

various countries in the Middle East. 

2

 Financial Action Task Force on Money Laundering; Report on Money 

Laundering Typologies 2001-2002; pages 2-7. Financial Action Task Force 

on Money Laundering; Report on Money Laundering Typologies 2000-2001; 

pages 19-21. 

22 What Bankers Should Look For 
• 	 Business account activity conducted by nationals of foreign 

countries associated with terrorist activity with no obvious 

connection to the business. 

On February 12, 2002, the U.S. House Financial Services 

Subcommittee on Oversight and Investigations heard testimony 

regarding terrorist financing and the implementation of the USA 

PATRIOT Act. The testimony discusses what the Federal Bureau 

of Investigation (FBI) has learned since the September 11, 2001, 

terrorist attacks about the patterns of financing associated with 

terrorist networks. The FBI also described the extent to which 

U.S. anti-money laundering statutes provide the necessary tools 

to detect and disrupt these patterns of financing. An interagency 

Financial Review Group devoted significant resources to 

identifying and following the money trail. 

What Bankers Should Look For 23
Reports That Can Help Bankers Identify 

Suspicious Transactions 

Anumber of readily available reports, in addition to the 

OFAC List, the NCCT List, and other government lists, 

can be generated by banks to assist them in the fight 

against money laundering. Following are some internal reports 

routinely available through bank service providers. 

Cash Transaction Reports - Most bank information service 

providers offer reports that identify cash activity and/or cash 

activity greater than $10,000. These reports assist bankers with 

filing currency transaction reports (CTRs) and in identifying 

suspicious cash activity. Some larger banks have software 

systems to assist them in completing CTRs accurately, especially 

when they have multiple locations. Most vendor software 

systems include standard suspicious cash activity reports that 

typically filter cash activity in three forms: 1) cash activity 

including multiple transactions greater than $10,000; 2) cash 

activity (single and multiple transactions) just below the $10,000 

reporting threshold (e.g., between $8,000 - $10,000); and, 3) 

cash transactions involving multiple lower-dollar transactions 

(e.g., $3,000) which over a period of time (e.g., 15 days) 

aggregate to a substantial sum of money. Such filtering reports, 

when implemented either through the purchase of a vender 

software system or through requests from the information service 

provider, will enhance significantly a bank’s ability to identify 

and evaluate unusual cash transactions. 

Wire Transfer Records / Logs - The BSA requires wire 

transfer records. Periodic review of this information can assist 

banks in identifying patterns of unusual activity. A periodic 

review of the wire records/logs in banks with low wire transfer 

activity is usually sufficient to identify unusual activity. For 

banks with greater wire activity, use of spreadsheets or vendor 

software, is an efficient way to review wire activity for unusual 

patterns. Most vendor software systems include standard 

suspicious activity filter reports. These reports typically focus 

24 Reports That Can Help Bankers 
on identifying certain higher risk geographies and larger dollar 

wire transactions (persons and corporations). Each bank should 

establish its own filtering criteria for both personal and corporate 

wire volumes based on their customer base. Non-customer 

wire transactions and Pay Upon Proper Identification (PUPID) 

transactions should always be reviewed for unusual activity. 

Monetary Instrument Records – Records on monetary 

instrument sales are required in certain circumstances by the 

BSA. Such records can assist bankers in identifying possible 

currency structuring3

 through the purchase of cashier’s checks, 

money orders, or traveler’s checks in amounts of $3,000 

to $10,000. A periodic review of these records can also 

help identify frequent purchasers and remitters of monetary 

instruments and common payees. 

Velocity of Funds Report - A velocity of funds report reflects 

the total debits and credits flowing through a particular account 

over a specific period (e.g., 30 days). This report can be used to 

identify customer accounts with substantial funds flow relative to 

other accounts. A review of this information can assist bankers 

to identify customers with a high velocity of funds flow and 

those with unusual activity. 

3

 Currency structuring is defined as actions taken by a customer or individual(s) 

to avoid BSA reporting requirements (e.g. currency transaction reports). 

Structuring as defined by the Bank Secrecy Act is a criminal offense. 

Reports That Can Help Bankers 25
Schemes Involving Possible Money 

Laundering and Terrorist Financing 

Below are a series of real cases selected from published 

reports. They are provided to reinforce the need for 

comprehensive, board-approved customer due diligence 

policies, a BSA compliance program, and sound suspicious 

activity monitoring systems. They also highlight the risks 

banks become subject to in the absence of a sound anti-money 

laundering program. 

Russian Money Laundering Scandal 

This scandal became public during the summer of 1999, with 

media reports of $7 billion in suspect funds moving from 

two Russian banks through a U.S. bank to thousands of bank 

accounts throughout the world. Pleadings from subsequent 

criminal cases indicate that, during a four-year period from 

1995-1999, two Russian banks deposited more than $7 billion 

in correspondent bank accounts at a New York bank. After 

successfully gaining entry for these funds into the U.S. banking 

system, the Russian banks transferred amounts from their New 

York bank correspondent accounts to commercial accounts at the 

bank that had been opened for three shell corporations. These 

three corporations, in turn, transferred the funds to thousands 

of other bank accounts around the world, using electronic wire 

transfer software provided by the bank. In the aggregate, from 

February 1996 through August 1999, the three corporations 

completed more than 160,000 wire transfers. 

In February 2000, guilty pleas were submitted by a bank 

employee and spouse and the three corporations for conspiracy 

to commit money laundering, operating an unlawful banking and 

money transmitting business in the United States, and aiding/ 

abetting Russian banks in conducting unlawful and unlicensed 

banking activities in the United States. The defendants admitted 

their money-laundering scheme was designed, in part, to help 

Russian individuals/businesses transfer funds in violation of 

Russian currency controls, custom duties, and taxes. The three 

corporations agreed to forfeit more than $6 million in their New 

York bank accounts. In August 2000, a federal court held that 

26 Money Laundering Schemes 
the United States had sufficient facts to establish probable cause 

to seize another $27 million from two New York correspondent 

accounts belonging to a Russian bank. 

Operation Wire Cutter 

The U.S. Customs Service, in conjunction with the Drug 

Enforcement Administration (DEA) and Colombian 

Departamento Administrativo de Seguridad, arrested 37 

people in January 2002 as a result of a two-and-one-half-year 

undercover investigation of Colombian peso brokers and their 

money laundering organizations. These people are believed to 

have laundered money for several Colombian narcotics cartels. 

The peso brokers contacted undercover Customs agents and 

directed them to pick-up currency in New York, Miami, Chicago, 

Los Angeles, and San Juan, Puerto Rico, that had been generated 

from narcotics transactions. The brokers subsequently directed 

the undercover agents to wire these proceeds to specified 

accounts in U.S. financial institutions that were often in the name 

of Colombian companies or banks that had a correspondent 

account with a U.S. bank. Laundered monies were subsequently 

withdrawn from banks in Colombia in Colombian pesos. 

Investigators seized more than $8 million in cash, 400 kilos 

of cocaine, 100 kilos of marijuana, 6.5 kilos of heroin, nine 

firearms, and six vehicles. 

Khalil Kharfan Organization 

The DEA (New York Division Group) and the U.S. Attorney’s 

Office in the Southern District of New York concluded a 

long-term investigation targeting the money laundering and 

narcotics activities of the Khalil Kharfan Organization operating 

in Colombia, Puerto Rico, Florida, and the New York TriState area. To date, the investigation has revealed that this 

organization laundered in excess of $100 million in narcotics 

proceeds. The organization was extremely sophisticated and 

used several types of communication devices to expedite the 

transfer of funds worldwide. The Colombian cell, which had 

staff stationed domestically in Puerto Rico, Florida, New York, 

and New Jersey, and international businesses and banks in 

Money Laundering Schemes 27 
Panama, Israel, Switzerland, and Colombia, used “members” 

to open accounts in the names of fictitious businesses allowing 

monies to be deposited and then transferred. Approximately $1 

million has been seized. 

High-Risk Geographic Location 

A pattern of cash deposits below the CTR reporting threshold 

generated a SAR filing by a U.S. institution. Deposits were made 

daily to the account of a foreign currency exchange totaling 

$341,421 for approximately a two-and-one-half-month period. 

During the same period, the business initiated 10 wire transfers 

totaling $2.7 million to a bank in the United Arab Emirates. 

When questioned, the business owner reportedly indicated 

he was in the business of buying/selling foreign currencies in 

Iran, the Persian Gulf States, and other countries in the Middle 

East, and his business never generated in excess of $10,000 

a day. CTRs for three years reflected cash deposits totaling 

$137,470 and withdrawals totaling $29,387. The business 

owner and the cash-out transactions were conducted by nationals 

of countries associated with terrorist activity. Another U.S. 

depository institution filed a SAR on this person for an $80,000 

cash deposit, which was deemed unusual for his profession. He 

also cashed two negotiable instruments at the same depository 

institution for $68,000 and $16,387 according to CTR filings. 

Wire Remittance Company 

Both a wire remittance company and a depository institution 

filed SARs outlining the movement of about $7 million in money 

orders through the U.S. account of a foreign business. The 

wire remittance company reported various persons purchasing 

money orders at the maximum face value of $500 to $1,000 

and in sequential order. Purchases were made at multiple 

locations, primarily in the northeastern United States, and several 

purchases also were reported in the southeast United States. The 

money orders were made payable to various persons, negotiated 

through banks in Lebanon, and later cleared through three U.S. 

institutions. The foreign business endorsed the money orders. In 

some instances, the funds were then credited to accounts at other 

U.S. depository institutions or foreign institutions. SARs filed 

28 Money Laundering Schemes 
by the depository institution reported similar purchases of money 

orders in the northeastern United States negotiated at the foreign 

business. Various beneficiaries were identified, all with Middle 

Eastern names. They received amounts ranging from $5,000 to 

$11,000. The foreign business identified by the wire remittance 

company also was identified as a secondary beneficiary. The 

money orders cleared through a foreign bank’s cash letter 

account at the U.S. depository institution. 

Travel Agent 

An IRS investigation in Virginia was initiated on the owner of 

a travel agency for currency structuring charges after analysis 

of SAR and CTR filings. The suspect operated, in addition to 

the travel agency, a money transmittal business that was wiring 

funds to his business interests in Lima, Peru, and Bogota, 

Colombia. An analysis of subsequent SARs and CTRs, coupled 

with various investigative techniques, including execution 

of several search warrants, led to the suspect entering a plea 

to one count of money laundering. The defendant admitted 

structuring transactions to avoid a CTR filing. The defendant 

structured deposits totaling between $2.5 to $5 million and used 

six business accounts at five financial institutions to facilitate 

his activities. The defendant consented to the administrative 

forfeiture of monies seized from his business accounts. 

Suspicious Activity Report Leads to 

Embargo Investigation 

An investigation of a possible violation of the International 

Emergency Economic Powers Act was initiated following a SAR 

filing by a bank in New York. The SAR stated that an unnamed 

bank vice president in charge of the funds transfer program 

manipulated four payments to the Sudan totaling $73,000 in 

violation of the embargo. The subject allegedly manipulated the 

bank’s internal Office of Foreign Assets Control (OFAC) filtering 

system by either manually overriding its screening and blocking 

function or by omitting any reference to Sudan and reprocessing 

the wire transfers through the same filtering system. The case 

was turned over to OFAC. 

Money Laundering Schemes 29 
Where To Get More Information 

Office of the Comptroller of the Currency 

For information on money laundering and national banks, 

contact: 

Compliance Division 

(202) 874-4428 

For OCC Publications and Ordering Information, contact: 

Communications Division 

Office of the Comptroller of the Currency 


250 E Street, SW


Washington, DC 20219-0001


(202) 874-4700


http://www.occ.treas.gov/mail1.htm


For information on establishing a BSA Compliance Program, 

refer to OCC’s Comptroller’s Handbooks: 

Bank Secrecy Act/Anti-Money Laundering 

http://www.occ.treas.gov/handbook/bsa.pdf 

Domestic Anti-Money Laundering and 

Terrorist Financing Resources 

Bank Secrecy Act 

http://cfr.law.cornell.edu/cfr/cfr.php?title=31&type=part&value=103 

Financial Crimes Enforcement Network (FinCEN) 

Office of Enforcement and Regulation


U.S. Department of the Treasury


270 Chain Bridge Road, Suite 200


Vienna, VA 22182


(800) 949-2732 (Regulatory Help Line)


(866) 556-3974 (Hotline for Suspected Terrorist Related Activity)


http://www.ustreas.gov/fincen/ 

FinCEN – Regulatory / BSA Forms and Filing Information 

http://www.treas.gov/fincen/bsaf_main.html 

30 Resource Information 
FinCEN – Publications / Advisories, Bulletins, Rulings, 

Fact Sheets 

http://www.treas.gov/fincen/pub_main.html 

FinCEN – Publications / External Documents 

http://www.treas.gov/fincen/pub_external_reports.html 

Office of Foreign Asset Control (OFAC) 

U.S. Department of the Treasury


Treasury Annex


1500 Pennsylvania Avenue, NW


Washington, DC 20220 


Compliance Hotline: (202) 622-2490


OFAC Fax-on-demand: (202) 622-2480 

http://www.treas.gov/ofac


OFAC - Regulations for the Financial Community 

http://www.ustreas.gov/offices/enforcement/ofac/regulations/ 

index.html 

United States Department of State: 

The “International Narcotics Control Strategy Report (INCSR)” 

for 2001 

http://www.state.gov/g/inl/rls/nrcrpt/2001/ 

Other Financial Service Resources 

American Bankers Association 

1120 Connecticut Avenue, NW 

Washington, DC 20036 

(800)-Bankers 

http://www.aba.com/ 

Resource Information 31 
Bankers Association Institute

One North Franklin•

Suite 1000•

Chicago, Illinois 60606-3421•

(800) 224-9889 •

http://www.bai.org/contact•

International Association of Insurance Supervisors

http://www.iaisweb.org 

Guidance Papers: Anti-Money Laundering Guidance Notes for 

Insurance Supervisors & Insurance Entities 

http://www.iaisweb.org/content/02pas/02money.pdf 

Securities Industry Association 

http://www.sia.com/ 

Frequently Asked Questions and Answers About Financial 

Services Industry’s Efforts To End Money Laundering

http://www.sia.com/press/html/moneylaundering.html 

U.S. General Accounting Office

441 G Street, NW 

Washington, DC 20548 

(202) 512-6000 

http://www.gao.gov/index.html 

32 Resource Information 
International Organizations and Agreements 

Financial Action Task Force on Money Laundering (FATF) 

http://www.fatf-gafi.org/ 

FATF – Forty Recommendations 

http://www.fatf-gafi.org/40Recs_en.htm 

FATF – Special Recommendations on Terrorist Financing 

http://www.fatf-gafi.org/SRecsTF_en.htm 

FATF – Guidance for Financial Institutions in Detecting 

Terrorist Financing 

http://www.fatf-gafi.org/pdf/GuidFITF01_en.pdf 

FATF – Non-Cooperative Countries and Territories (NCCT) 

Information 

http://www.fatf-gafi.org/NCCT_en.htm 

Bank for International Settlements 

http://www.bis.org/ 

Basel Committee on Banking Supervision – Customer Due 

Diligence for Banks 

(Basel, October 2001) 

http://www.bis.org/publ/bcbs85.htm 

Basel Committee on Banking Supervision – Prevention 

of Criminal use of the Banking System for the Purpose of 

Money Laundering 

(Basel, December 1988) 

http://www.bis.org/publ/bcbsc137.pdf 

United Nations 

http://www.un.org/ 

Resource Information 33 
International Convention for the Suppression of the 

Financing of Terrorism 

(New York, 9 December 1999) 

http://untreaty.un.org/English/Terrorism/Conv12.pdf 

(Link to current participant list) 

http://untreaty.un.org/ENGLISH/Status/Chapter_xviii/ 

treaty11.asp 

UN Security Council Resolution 1373 

(New York, 28 September 2001) 

http://daccess-ods.un.org/doc/UNDOC/GEN/N01/557/43/PDF/ 

N0155743.pdf?OpenElement 

UN Security Council Resolution 1373 – Counter Terrorism 

Committee

http://www.un.org/Docs/sc/committees/1373/ 

UN Convention Against Transnational Organized Crime 

(Palermo, 12-15 December 2000)

http://www.undcp.org/palermo/convmain.htm 

UN Convention Against Illicit Traffic in Narcotic Drugs and 

Psychotropic Substances

(Vienna, 20 December 1988) 

http://www.incb.org/e/conv/1988/index.htm 

Transparency International

http://www.wolfsberg-principles.com/index.htm 

Global Anti-Money Laundering Guidelines for Private 

Banking: “The Wolfsberg AML Principles”

(October 2000) 

http://www.wolfsberg-principles.com/wolfsberg_principles_1st_ 

revision.htm 

The Suppression of the Financing of Terrorism: “The 

Wolfsberg Statement”

(Wolfsberg, January 2002) 

http://www.wolfsberg-principles.com/wolfsberg_principles_1st_ 

revision.htm 

34 Resource Information 
Money Laundering and Terrorist 

Financing Trends 

Financial Action Task Force on Money Laundering (FATF) 

FATF - Report on Money Laundering Typologies, 2001-2002 

http://www.fatf-gafi.org//pdf/TY2002_en.pdf 

FATF - Report on Money Laundering Typologies, 2000-2001 

http://www.fatf-gafi.org//pdf/TY2001_en.pdf 

The Financial Crimes Enforcement Network (FinCEN) 

SAR Bulletin - Issue 4 “Aspects of Financial Transactions 

Indicative of Terrorist Funding” 

http://www.treas.gov/fincen/sarbul0201-f.pdf 

(January 2002) 

FinCEN Follows the Money: A Local Approach to Identifying 

and Tracing Criminal Proceeds (January 1999) 

http://www.treas.gov/fincen/followme.pdf 

Minority Staff of the U.S. Senate Permanent Subcommittee 

on Investigations - Report on Correspondent Banking: A 

Gateway for Money Laundering 

http://www.senate.gov/~gov_affairs/020501_psi_minority_ 

report.htm 

Minority Staff of the U.S. Senate Permanent Subcommittee 

on Investigations - Private Banking and Money Laundering: A 

Case Study of Opportunities and Vulnerabilities 

http://levin.senate.gov/issues/psireport2.htm 

U.S. House Financial Services Subcommittee on Oversight 

and Investigations Hearing 

http://financialservices.house.gov/media/pdf/021202dl.pdf 

Resource Information 35