2007 

National Money

Laundering

Strategy
I N T R O D U C T I O N 

TABLE OF CONTENTS

2 0 0 7 N a t o n a l M o n e y L a u n d e ri n  S t r a t e g

Foreword .............................................................................................................................................

Introduction....................................................................................................................................... v

Continue to Safeguard

the Banking System....................................................................................................................... 1

Enhance Financial Transparency in 

Money Services Businesses....................................................................................................... 3

Stem the Flow of Illicit Bulk 

Cash Out of the United States.................................................................................................. 5

Attack Trade-based Money Laundering At 

Home and Abroad........................................................................................................................... 7

Promote Transparency in the Ownership 

of Legal Entities............................................................................................................................... 8

Examine Anti-Money Laundering Regulatory 

Oversight and Enforcement at Casinos .............................................................................. 9

Implement and Enforce Anti-Money Laundering 

Regulations for the Insurance Industry............................................................................. 10

Support Global Anti-Money Laundering 

Capacity Building and Enforcement Efforts..................................................................... 11

Improve How We Measure Our Progress........................................................................... 13

Appendices

 (A) U.S. Money Laundering Threat Assessment...................................................... 1

 (B) Anti-Money Laundering Statistics.........................................................................

 (C) Law Enforcement Data and Intelligence Centers............................................. 9

(D) The Strategic Use of Asset Forfeiture ................................................................. 1
ii I N T R O D U C T I O 
2007 National Money Laundering Strateg  Forewo

F o r e w o r d 

Fo

The National Money Laundering Strategy for 2007 breaks new ground in two important respects: it responds 

directly to the unprecedented U.S. interagency Money Laundering Threat Assessment completed in December 

2005, and it focuses exclusively on deterring money laundering, independent of our efforts to combat the 

financing of terror. Money laundering, in its own right, is a serious threat to our national and economic security. 

Integrating illicit proceeds into the financial system enables organized crime, fuels corruption, and erodes confidence 

in the rule of law. 

The specific money laundering threats and vulnerabilities addressed by the 2007 Strategy were identified by an 

interagency working group in a year-long evaluation that culminated in the U.S. Money Laundering Threat Assessment. 

The Threat Assessment represents a significant step forward for the U.S. Government’s efforts to combat money 

laundering and is a testament to our progress. Never before have regulators, policymakers, and law enforcement 

professionals come together to identify money laundering trends and methods in the United States, and to assess our 

effectiveness against a spectrum of money laundering threats. 

Further, the 2007 Strategy builds on a solid foundation of successful initiatives and programs introduced in previous 

National Money Laundering Strategies. Although we have made progress, money laundering is a dynamic threat 

requiring a dynamic response. As globalization opens borders to travel and trade, and global payments and clearing 

systems evolve, new money laundering opportunities are created and exploited. Accordingly, the 2007 National 

Money Laundering Strategy responds to established and emerging money laundering trends and techniques both at 

home and abroad. 

Henry M. Paulson, Jr.

Secretary of the Treasury

Alberto R. Gonzales

Attorney General 

Michael Chertoff

Secretary of Homeland Security
iv I N T R O D U C T I O N
2007 National Money Laundering Strateg  Introduct

I N T R O D U C T I O N 

In

The 2007 National Money Laundering Strategy is 

a direct response to the first U.S. Governmentwide money laundering threat assessment released in December 2005. In addition to following this 

new methodology, the 2007 Strategy for the first time 

focuses exclusively on money laundering. Previous 

U.S money laundering strategies presented a combined 

program against both money laundering and terrorist financing. While money launderers and terrorist financiers may use the same financial channels and employ 

similar techniques, there are differences in their operations and in our strategies against them. 

 

The National Money Laundering Strategy for 2007 identifies areas in which the U.S. government will work to revise, enhance, or renew efforts to enforce existing Federal 

laws and regulations; study areas in which new guidance 

may be appropriate; and work with State supervisory and 

law enforcement authorities to improve financial transparency in State-regulated financial sectors. There are also 

areas identified in which the U.S. can more effectively 

exploit information-sharing opportunities between law 

enforcement and the financial services community.

Although conceived to be the foundation for the 2007

Strategy, the U.S. Money Laundering Threat Assessment 

is much more than that. It not only assesses the progress 

the United States has made in combating money laundering and highlights areas that require further attention, 

but also provides lawmakers, regulators, examiners, law 

enforcement, and industry with a cautionary explanation 

of how major money laundering methods operate. For 

this reason, the Threat Assessment is included in its entirety as Appendix A.

Key findings of the U.S. Money Laundering Threat 

Assessment include:

Banks and other depository institutions remain the 

primary gateway to the U.S. financial system. Once 

illegal proceeds get into a depository institution, they 

can be moved instantly by wire or disguised through 

commingling with legitimate funds. With the 

advent of Internet and remote banking, depository 

institutions face increased challenges identifying 

customers and their customers’ sources of funds. 

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Money Services Businesses (MSBs) offer an 

alternative to banks for both financial services and 

money laundering. This industry includes check 

cashers, money transmitters, foreign exchange 

dealers, and sellers of money orders, stored value 

products, and travelers’ checks. Small retailers 

may offer informal money services as a sideline. 

Relatively few MSBs are registered. 

Smuggling cash out of the United States for deposit 

elsewhere is a well-established money laundering 

method and appears to be on the rise due to the 

barriers criminals face attempting to launder 

cash domestically. Bulk cash smuggling is most 

often associated with illegal narcotics. The illicit 

proceeds flow out of the U.S., often across the 

Southwest border, retracing the route that drugs 

frequently take entering the United States. Drugs 

and illicit proceeds cross the U.S. northern border 

as well. 

Often the most complex money laundering methods 

involve the use of international trade to disguise 

funds transfers. Trade-based money laundering 

takes many forms including the Black Market Peso 

Exchange, which separates the crime from the cash 

early in the money laundering process. Under this 

scheme, drug dealers are able to hand off their 

illicit dollars in the U.S. to professional money 

launderers who make clean funds available outside 

the United States. 

Legal entities, including corporations, limited 

liability companies and trusts, serve many 

legitimate purposes but also can be used for 

money laundering. Criminals who are able to hide 

their control of a company or trust can disguise 

their money laundering activity as commercial 

transactions. Minimal registration requirements 

and lax oversight can make it difficult to determine 

who owns and operates legal entities. 

Casinos are cash-intensive businesses that often 

provide financial services and money laundering 

opportunities. The exchange of cash for casino chips 

and related money transfer and account services 

make casinos vulnerable to money laundering. The 

number of gaming establishments in the U.S. is 

growing, driven by Native American tribes. Casinos 

on Indian reservations today bring in more money 

than Las Vegas and Atlantic City combined. 

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v

Introduction 2007 National Money Laundering Strate

I N T R O D U C T I O N 

The insurance industry has undergone a 

transformation, and may become increasingly 

attractive to money launderers. While traditional 

insurance policies remain an important part of the 

life insurance business, agents and brokers now 

offer a range of investment services featuring 

financial products that can be purchased and 

subsequently transferred, redeemed or sold, 

creating new opportunities for money laundering. 

 

The United States has a robust and aggressive anti-money laundering (AML) program. While quantifying the 

effectiveness of U.S. efforts against money laundering 

is difficult given the nature of the crime, there are ample 

indications U.S. regulations and law enforcement are 

having an impact. As it becomes more difficult to move 

illicit funds using a particular money laundering method, 

there is a clear migration to other channels. The Financial Action Task Force recognized the effectiveness of 

the U.S. AML enforcement regime in its Report on the 

Third Mutual Evaluation of the United States adopted in 

June 2006. The Report’s summary states:

The U.S. Authorities are committed to identifying, disrupting, and dismantling money laundering and terrorist financing networks. They seek to combat money 

laundering and terrorist financing on all fronts, including by aggressively pursuing financial investigations. 

These efforts have produced impressive results in terms 

of prosecutions, convictions, seizures, asset freezing, 

confiscation and regulatory enforcement actions1.

Statistics demonstrating the Federal law enforcement 

and regulatory efforts against money laundering are presented in Appendix B. 

The Threat Assessment and 2007 National Money 

Laundering Strategy are products of broad-based interagency cooperation. More than a dozen Federal agencies, bureaus, and offices participated in these projects, 

each with a unique mission and a unique view of the 

money laundering landscape. Each category of financial crime has distinct criminal and financial traits. Accordingly, each Federal law enforcement agency has a 

• lead role in a particular category of crime and often has 

expertise interdicting specific money laundering threats. 

Participation in crafting the 2007 Strategy came from 

across the Departments of the Treasury, Justice, State, 

and Homeland Security, as well as from the Board of 

Governors of the Federal Reserve System, the Office of 

the Comptroller of the Currency, and the Federal Deposit 

Insurance Corporation. 

Collaboration is an essential component of the U.S. 

strategy against money laundering. U.S. law enforcement agencies are most effective when they work together through information sharing, pooled databases, 

regional task forces and Suspicious Activity Report 

Review Teams. Examples of law enforcement collaboration are included in Appendix C, which includes a listing of databases and intelligence centers that hold bulk 

cash seizure and other information. 

An important tool in the U.S. fight against money laundering is asset forfeiture, which strips away the profit 

from illegal activity. In addition to disgorging criminal 

proceeds and deterring crime, asset forfeiture has been 

used to facilitate the return of funds to victims of fraud 

and has resulted in millions of dollars being transferred 

to State, local and international law enforcement efforts 

through equitable sharing. A description of the strategic 

use of asset forfeiture is presented in Appendix D. 

Due to the global nature of financial and communications networks, the United States cannot have a sustained 

impact against money laundering unless other countries 

impose similar or complementary domestic regulations 

and cooperate with international sanctions. The U.S. 

government continues to work bilaterally and multilaterally to improve global safeguards. All agencies participating in AML initiatives domestically also work closely with their international counterparts through bilateral 

and multilateral channels to assist in capacity-building 

efforts and coordination. International support for effective AML programs is vital to the national security of 

the United States and is one of the goals outlined in the 

2007 National Money Laundering Strategy. 

1

 Financial Action Task Force, Summary of the Third Mutual Evaluation Report on Anti-Money Laundering and Combating the Financing of 

Terrorism, United States of America, 23 June 2006, available at www.fatf-gafi.org/dataoecd/44/9/37101772.pdf
2007 National Money Laundering Strateg  GOAL

G o a l 1 

Goal 1: 

Cotin

the Ba

Threats and Vulnerabilities

Banks and other depository institutions are the principal gateway to the U.S. financial system and are constantly threatened by criminals attempting to 

launder illicit funds. Once illegal proceeds are placed into 

a depository institution, the funds can be moved easily by 

wire transfer or disguised by intermingling them with legitimate funds. The challenges depository institutions face 

include criminals attempting to hide their identities and 

sources of income in order to open accounts and launder 

illicit proceeds. In addition, use of the Internet as a means 

for customers to open or access accounts and the steady influx of immigrants without U.S. government-issued identification are compelling banks to explore new ways to verify 

the identity of their customers. Internationally, the use of 

“correspondent,” “payable through,” and “nested” accounts 

also create opportunities for concealing a customer’s true 

identity in the absence of adequate customer due diligence. 

Even when currency is smuggled out of the United States, 

the funds can get into the banking system abroad and come 

back to the U.S. via cross-border wire transfers.2 

Strategy

To safeguard the banking system, the Financial Crimes 

Enforcement Network (FinCEN), the Federal banking 

regulators, and the Federal law enforcement community 

will continue to work closely with the banking industry to 

fight money laundering. FinCEN and the Federal banking regulators will develop and publish guidance alerting the banking industry to money laundering threats 

and the development and application of AML controls. 

FinCEN also will work to enhance information sharing between the law enforcement community and the 

banking industry, and will conduct focused outreach in 

coordination with law enforcement to demonstrate the 

value of Bank Secrecy Act data to the various sectors of 

the financial community. The Federal law enforcement 

community will make industry outreach a priority and 

will pursue financial crimes aggressively. 

Action Items3

FinCEN will continue to conduct outreach efforts 

on the new regulatory requirements implementing 

Section 312 of the USA PATRIOT Act. Section 

312 requires certain financial institutions to conduct 

due diligence when establishing or maintaining 

correspondent accounts for foreign financial 

institutions or private banking accounts for non-U.S. 

persons and to conduct enhanced due diligence when 

establishing or maintaining correspondent accounts 

for certain types of foreign banks or private banking 

accounts for senior foreign political figures, their 

families and close associates. 

FinCEN and the Federal banking regulators will 

work with the Federal law enforcement agencies to 

shut off access to U.S. depository institutions for the 

Black Market Peso Exchange (BMPE) by increasing 

the use of advisories to alert depository institutions 

of relevant threats. The BMPE is considered a 

trade-based money laundering technique, but it 

often relies on access to accounts at U.S. depository 

institutions.4 

FinCEN will work to sign information-sharing 

agreements with States that have not yet signed a 

memorandum of understanding (MOU). FinCEN 

developed a model information-sharing agreement 

that it is seeking to execute with all States that regulate 

banks, money services businesses (MSBs), and 

other types of financial institutions for compliance 

with the Bank Secrecy Act (BSA) or similar AML 

requirements. 

FinCEN will place a stronger emphasis on producing 

more advanced analytic products and increase its 

ongoing efforts to analyze BSA filings to provide 

geographic threat assessments. These assessments 

help law enforcement better determine where 

vulnerabilities may exist in the financial systems 

operating within their respective geographic areas 

and assist the Federal and State banking regulators 

in targeting examinations and enforcement.

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2

 For more information on money laundering threats to the U.S. banking system and countermeasures see Appendix A.

3

 Many of these Action Items are applicable to the broader category of “financial institutions,” which includes banks and other depository 

 institutions, as well as other financial services businesses.

4

 For more on the BMPE and trade-based money laundering see Goal 4 and Appendix A.
GOAL 1 2007 National Money Laundering Strateg  Introduct

G o a l 1 

FinCEN and Federal law enforcement agencies will 

continue information-sharing and partnering with 

the financial community through forums, such as the 

Bank Secrecy Act Advisory Group (BSAAG)5 and

its related subcommittees. FinCEN will propose to 

the BSAAG the creation of a new subcommittee to 

serve as a forum in which all stakeholders can provide 

input and maintain a dialogue on stored value issues 

as FinCEN implements its regulatory plan.

The Treasury will work with the Federal law 

enforcement agencies to identify areas where 

Geographic Targeting Orders (GTOs) could 

be used to identify and attack geographically 

specific money laundering activity. The Treasury 

Department has the authority, using a GTO, to 

require financial institutions in a geographic area 

to file additional transaction reports or maintain 

additional records beyond those ordinarily required 

under the regulations implementing the BSA and 

other relevant requirements. GTOs have 

the potential to generate important information

for law enforcement, facilitating better

targeting of resources to combat illegal activity.

FinCEN will facilitate improved informationsharing among and between the financial services 

community and law enforcement. Section 314 

of the USA PATRIOT Act enables government 

entities to provide actionable intelligence to 

financial institutions, and mandates reporting 

by financial institutions, as well as facilitating 

information sharing among financial institutions 

themselves. FinCEN will provide more frequent 

alerts and advisories regarding terrorist financing 

and money laundering through the Section 314 

information-sharing system to better educate the 

industry regarding risks to the U.S. financial system 

and enable the industry to interdict appropriately.

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FinCEN, in conjunction with other components 

of the Treasury, will study the application, 

supervision, and enforcement of AML policies 

and procedures on private-sector global payment 

networks, leveraging similar work being undertaken 

by a number of governmental and international 

organizations on a multilateral basis. The global 

reach of these payment networks often puts them 

outside the jurisdiction of any one domestic 

authority. 

FinCEN will work to promote consistent reporting 

of how BSA data is used and the value of BSA data 

to the relevant agencies.

The Office of Foreign Assets Control (OFAC) will 

continue to foster transparency within the automated 

clearing house6 community to assure that adequate 

information is included with cross-border funds 

transfers and that transactions subject to financial 

sanctions are appropriately interdicted.

Federal law enforcement agencies that investigate 

financial crimes will expand formal outreach 

programs with the banking industry and identify 

industry liaisons.

Federal law enforcement agencies will maintain 

robust Suspicious Activity Report (SAR) review 

programs and BSA data analysis in order to 

initiate and support investigations of attempts to 

exploit the banking system for money laundering. 

There are 80 SAR Review Teams operating across 

the United States analyzing BSA data to identify 

evidence of financial crimes. 

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5

 The BSAAG is an advisory group consisting of representatives of government, financial institutions, and other interested persons. The 

BSAAG meets semiannually for the purpose of informing private sector representatives of the utility of Bank Secrecy Act reports and to advise 

the Secretary of the Treasury (or his designee) of potential enhancements or modifications to existing Bank Secrecy Act requirements. 

6

 The Automated Clearing House (ACH) system is a domestic electronic batch transfer interbank payment network. The ACH is used by 

participating depository financial institutions to clear electronic funds transfers, such as automatic payroll deposits and certain debit card 

transactions. The Federal Reserve and the Electronic Payments Network act as central clearing facilities through which financial 

institutions transmit or receive ACH entries. The ACH is governed by the private sector National Automated Clearing House Association.
2007 National Money Laundering Strateg  GOAL

G o a l 2

Goal 2:

Enh

Traspa

Ser

Threats and Vulnerabilities

Criminals unable to move illicit cash directly into 

the U.S. banking system may turn to money 

services businesses (MSBs) as an alternative. 

MSBs encompass a large and varied group of non-depository financial service providers offering both formal 

and informal value transfer services. MSBs include 

money transmitters, check cashers, currency exchangers, as well as issuers, sellers, and redeemers of money 

orders, traveler’s checks, and stored value. The diversity 

and accessibility of the MSB sector presents challenges 

for regulation and oversight. While the exact number 

of service providers in the United States is difficult to 

determine, estimates suggest that fewer than 20 percent 

of MSBs are registered with FinCEN. It is not known 

what percentage of unregistered MSBs are exempt from 

registration, due for example to their low business volumes or agent status. Regardless, the result is that the 

vast majority of MSBs operate without direct Federal 

regulatory supervision.7 

Strategy

The relevant regulatory, supervisory, and law enforcement agencies will work collaboratively to improve and 

expand MSB outreach initiatives and will work aggressively to identify and prosecute MSBs that facilitate 

money laundering. FinCEN will clarify MSB regulatory obligations, simplify the registration process, and 

strengthen the BSA compliance supervisory structure.

Action Items

Federal law enforcement agencies will increase 

enforcement efforts along the Southwest border, 

which they have identified as a primary destination 

and transshipment point for suspicious funds sent 

•

through MSBs. A key finding of the 2005 National 

Drug Threat Assessment8 was that drug traffickers 

use MSBs – particularly money transmitters, 

currency exchanges (casas de cambio), and check 

cashing businesses – to launder drug proceeds.

OFAC will enter into MOUs with the States, 

working with the Conference of State Bank 

Supervisors and the Money Transmitter Regualtors 

Association, to share information and improve 

awareness of trade and economic sanctions that are 

often connected with money laundering schemes.

FinCEN, in coordination with the Federal banking 

regulators and the industry, will issue guidance and 

develop regulatory definitions and requirements 

under the BSA for stored value products and 

payment systems. 

FinCEN will coordinate with the Federal law 

enforcement agencies and the Immigration and 

Customs Enforcement (ICE)-led Identity and 

Benefit Fraud Task Force to identify unregistered 

MSBs, conduct outreach and, where appropriate, 

to harmonize law enforcement responses. ICE’s 

new MSB/IVTS9 initiative has since January 

2006 identified more than 400 unlicensed 

MSBs, resulting in the initiation of 300 criminal 

investigations.

FinCEN, in coordination with the Internal Revenue 

Service (IRS), will enhance public sector outreach 

to educate MSBs about their regulatory obligations 

as well as making the sector aware of money 

laundering indicators.

FinCEN will explore ways to obtain more 

information on MSBs. This will help focus 

supervision and enforcement resources on MSBs 

that present the greatest vulnerability to money 

laundering and other criminal activity. FinCEN 

also will seek to clarify the extent to which 

branches or agents of foreign MSBs located in the 

United States are subject to the BSA. 

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7

 For more information on money laundering threats involving MSBs and U.S. countermeasures see Appendix A.

8

 National Drug Threat Assessment, produced by the National Drug Intelligence Center, available at http://www.usdoj.gov/ndic/

pubs11/12620/index.htm. 

9

 Informal Value Transfer Systems (IVTS) refers to funds transfers that take place outside of the conventional banking system through nonbank financial institutions or other business entities whose primary business activity may not be the transmission of money


GOAL 2 2007 National Money Laundering Strateg

G O A L 2

The IRS will work to sign information-sharing 

agreements with States that have not already signed 

an MOU. The IRS has a model Federal/State MOU 

that provides both IRS and the participating State 

the opportunity to leverage resources for BSA 

examinations, training, and outreach. FinCEN and 

the IRS (which has been delegated examination 

authority for MSBs10) are reviewing examiner 

training materials, as well as materials used for 

education and outreach, and are working with 

State regulators to launch a task force dedicated 

to educating and assisting MSB regulators on the 

conduct of BSA examinations.

IRS-Criminal Investigation (IRS-CI) and IRS 

Small Business/Self Employed BSA (IRS SB/SE 

BSA) will continue to implement the Fraud Referral 

Program through which civil operating divisions 

of the IRS advise IRS-CI of potential criminal 

violations encountered during the performance of 

their duties. The Fraud Referral Program has been 

a traditional tool for criminal tax enforcement, 

but in FY 2005 IRS-CI, working with IRS SB/

SE, expanded the program to include MSB BSA 

compliance. 

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10 IRS Small Business/Self Employed BSA has been delegated authority to examine MSBs for BSA compliance. 
 2007 National Money Laundering Strateg  GOAL

G O A L 3

Goal 3:

Stm 

Illicit B

the U

Threats and Vulnerabilities

Criminals facing barriers to money laundering 

at banks and MSBs in the United States may 

attempt to smuggle cash to foreign financial 

institutions. Often some of those funds are wired or 

transported back to the United States for deposit in U.S. 

accounts. The smuggling of bulk currency out of the 

United States is the largest and most significant drugmoney laundering threat facing law enforcement. Deterring direct access to U.S. financial institutions by 

criminals does not prevent money laundering if illicit 

proceeds can still reach U.S. accounts through indirect 

means.11 

Strategy

Stopping criminal proceeds from leaving the United 

States as illicit bulk cash and reentering the country as 

seemingly legitimate funds requires a borderless strategy that includes initiatives against bulk cash smuggling at home and capacity building and cooperation 

abroad.12 

Action Items

Treasury’s Executive Office for Asset Forfeiture 

will provide support for both IRS-CI and ICE to 

establish more Federal law enforcement-led task 

forces and investigations targeting the smuggling 

of bulk cash out of the United States. The 

Department of Justice will provide support for Drug 

Enforcement Administration (DEA) participation 

in task forces and investigations targeting bulk 

cash smuggling. 

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The Departments of the Treasury and Justice 

will continue to sponsor advanced bulk currency 

smuggling and post-interdiction financial 

investigations training for DEA, IRS-CI, ICE and 

Customs and Border Protection (CBP), and the 

United States Attorneys Offices. 

OFAC and the Federal Reserve will continue their 

efforts to prevent the wholesale distribution of 

U.S. currency, by commercial banks that receive 

Federal Reserve Cash Services, to rogue regimes 

or entities that appear on OFAC’s List of Specially 

Designated Nationals and Blocked Persons.

CBP, DEA, and ICE will expand bulk cash 

concealment detection training for State and local 

law enforcement. This will include training in 

concealment “trap” detection13 , methods of courier 

debriefing, and guidance on pertinent evidence 

identification.

The Organized Crime Drug Enforcement Task 

Force (OCDETF), through its regional strategic 

initiatives, will target illegal bulk cash movement 

along the Southwest border and on interstate 

highways coming from the Western and Eastern 

States. These bulk cash initiatives will be 

supported by OCDETF’s Co-Located Strike 

Forces in Houston and Atlanta and the Gulf Coast 

High Intensity Drug Trafficking Area (HIDTA)14 

Blue Lightning Operations Center, which function 

as regional points of contact for law enforcement 

officers and prosecutors nationwide. These 

regional support centers gather intelligence and 

disseminate leads quickly throughout neighboring 

areas. 

The DHS-led Border Enforcement Security Task 

Force (BEST) will be expanded beyond the 

Southwest border, where bulk cash smuggling is 

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11 For more information on bulk cash smuggling and U.S. countermeasures see Appendix A.

12 For information on international initiatives see Goal 8.

13 Smugglers use many low- and high-tech methods to conceal cash and other contraband in hidden compartments or “traps” in vehicles and merchandise. 

14 The HIDTA program enhances and coordinates drug control efforts among local, State, and Federal law enforcement agencies. The 

program provides agencies with equipment, technology, and additional resources to combat drug trafficking and its harmful consequences 

in critical regions of the United States.


GOAL 3 2007 National Money Laundering Strateg

G O A L 3 

targeted as an identified vulnerability at specific 

points of entry, to include Northern border locations 

as well.

CBP, in coordination with ICE, will increase 

the capability for outbound inspections and will 

continue to invest in research and development of 

non-intrusive bulk currency detection technology. 

CBP, in coordination with ICE, will develop 

mitigation guidelines for bulk cash smuggling 

violations. Currently, when cash is seized in 

violation of the bulk cash smuggling statute, 

31 U.S.C. 5332, CBP has utilized mitigation 

guidelines applicable to a person failing to file a 

Report of International Transportation of Currency 

or Monetary Instruments (required for amounts 

exceeding $10,000 entering or leaving the country). 

Distinct mitigation guidelines must be formulated 

for the smuggling of bulk currency. 

FinCEN and the Federal banking regulators will 

work with the Federal law enforcement agencies 

to help U.S. depository institutions identify illicit 

deposits. In April 2006, FinCEN and the Federal 

banking regulators issued an advisory warning that 

U.S. financial institutions may be misused for the 

repatriation of illicit U.S. currency smuggled into 

Mexico. 

The National Drug Intelligence Center (NDIC) 

will partner with the El Paso Intelligence Center15

to produce a comprehensive Southwest border 

bulk cash threat assessment. This joint analysis 

will produce recommendations to maximize the 

effectiveness of law enforcement resources to 

combat bulk cash smuggling in the Southwest 

border region. 

NDIC will conduct a comprehensive analysis of 

bulk cash smuggling along the Northern border. 

The project will seek to identify the areas in this 

region where bulk cash smuggling is taking place, 

the methods used, and the groups responsible. 

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15 See Appendix C.
2007 National Money Laundering Strateg  GO

G O A L 

Goal 4:

Attack T

Money L

Home a

Threats and Vulnerabilities

The most complex money laundering methods are 

often those that use trade to transfer value into 

or out of the United States. Trade-based money 

laundering encompasses a variety of schemes. The 

most common 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, and using criminal 

proceeds to buy gems or precious metals. Trade-based 

schemes are also used by informal value transfer systems 

to settle accounts.16 

Strategy

Law enforcement will use all available means to 

identify and dismantle trade-based money laundering 

schemes. This strategy includes infiltrating criminal 

organizations to expose complex schemes from the 

inside, and deploying ICE-led Trade Transparency 

Units that facilitate the exchange and analysis of trade 

data among trading partners. 

Action Items

ICE will work with countries that have expressed 

interest in establishing Trade Transparency Units 

(TTUs) with the United States. ICE, with the 

support of the Department of State, has established 

TTUs in Argentina, Paraguay, Brazil, and 

Colombia, and is working with the governments of 

Mexico, the Philippines, and Malaysia to establish 

TTUs. The mission of a TTU is to analyze crossborder trade data in order to identify anomalies that 

might indicate trade-based money laundering, such 

as the BMPE. With Treasury Department support 

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for domestic TTU operations, ICE conducts 

investigations and prosecutions related to tradebased money laundering and other financial crimes 

in the United States and abroad. 

Treasury and ICE will investigate how Foreign 

Trade Zones (FTZ), known as free trade zones 

outside of the United States, are abused for tradebased money laundering and will work with host 

nations to close this vulnerability. Operating in an 

FTZ allows manufacturers legal options to defer, 

reduce, or even eliminate U.S. customs duties. 

These zones are intended to promote manufacturing, 

but also facilitate money laundering when false 

documentation is used to misrepresent imports and 

exports.

The United States will attack both the onshore and 

offshore components of the BMPE. Federal law 

enforcement agencies and the Department of State 

will work cooperatively and collaboratively with 

foreign law enforcement authorities to shut down 

the international BMPE network. In addition, 

U.S. Federal law enforcement agencies and offices 

of the Treasury will continue to work with the 

U.S. financial services and trade communities to 

raise awareness of trade-based money laundering 

strategies, including the BMPE. 

NDIC will dedicate analytic resources to producing 

a database that will collect BMPE-related data and 

will publish an intelligence product addressing a 

reverse BMPE scheme, known as reintegro, which 

is believed to account for a significant percentage 

of illicit proceeds laundered through the BMPE 

annually. When goods are exported from Colombia, 

the shipper must obtain documentation that allows 

the goods to be exported and payment to be received 

into the shipper’s bank account. This is known as 

a reintegro, which means ‘’reintegrate papers.’’ 

After the initial use of the export documents by 

the shipper, these papers are often sold for others 

to use, which can create opportunities for money 

laundering.17 

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16 For more information on trade-based money laundering and U.S. countermeasures see Appendix A. 17 For more information on reintegro, see: “Law Enforcement Efforts to Combat International Money Laundering Through Black Market 

Peso Brokering,” House of Representatives Subcommittee on General Oversight and Investigations, Committee on Banking and Financial 

Services, U.S. House of Representatives, October 22, 1997, at: 

http://commdocs.house.gov/committees/bank/hba44337.000/hba44337_0f.htm. 
GOAL 5 2007 National Money Laundering Strateg

G O A L 5 

Goal 5:

Promo

theO

En

Threats and Vulnerabilities

The organization and registration of certain 

business entities, such as corporations, 

limited liability companies, and trusts can be 

accomplished in all State jurisdictions with minimal 

public disclosure of personal information regarding 

controlling interests and ownership. The current lack 

of transparency prevents financial institutions from 

identifying suspicious transactions and hinders law 

enforcement investigations and prosecutions. Using a 

State-registered business entity as a front is one way that 

money launderers gain access to U.S. banks and other 

domestic financial institutions.18 

Strategy

FinCEN will enhance awareness of the misuse of 

legal entities for money laundering, and, with OFAC 

and other offices of the Treasury, will work with 

State administrators to explore options to increase 

transparency in the beneficial ownership of legal 

entities. FinCEN, OFAC, the IRS, and the Federal 

functional regulators will issue guidance on the risks 

of providing financial services to shell companies. 

Law enforcement agencies will target for prosecution 

individuals who use the incorporation process to 

facilitate money laundering. 

Action Items

FinCEN, OFAC, the IRS, and the Federal functional 

regulators will develop guidance for financial 

institutions alerting them to the risks inherent in 

providing financial services to shell companies 

and other legal entities, and will suggest ways to 

mitigate those risks consistent with applicable AML 

and customer identification program regulations. 

•

FinCEN will publish an analytical study of the 

use of domestic legal entities, focusing on limited 

liability companies, in financial crime and money 

laundering.

Offices of the Treasury, including FinCEN and 

OFAC, will develop and implement outreach 

programs with State authorities and relevant 

trade associations to explore legislative and 

administrative options torequire the disclosure of 

ownership information in the company registration 

process. Outreach efforts will focus on those States 

with the most significant organization activity 

and those that are most often cited in Suspicious 

Activity Reports involving shell companies and 

other legal entities.

The Treasury, in conjunction with FinCEN and 

the Federal functional regulators, will provide 

necessary guidance to clarify points of question 

about the customer identification program rule.

The Federal Bureau of Investigation (FBI) is 

developing an internal working group that will 

focus on service providers that form companies on 

behalf of offshore criminal interests. The working 

group will identify and develop actionable leads, 

initiate investigations, and work cooperatively with 

domestic and foreign law enforcement agencies 

to combat threats to the United States posed by 

criminal organizations operating through U.S. 

shell companies and other legal entities. 

•

•

•

•

18 For more information on the money laundering threats associated with legal entities see Appendix A.
2007 National Money Laundering Strateg  GO

G O A L 

Goal 6:

Examine 

Launde

Over

Eno

Threats and Vulnerabilities

Casinos are a high-volume cash-intensive industry 

and are among a broad and varied group of 

nonbank financial institutions that offer money 

laundering opportunities outside the traditional financial 

services system. A number of money laundering 

schemes using casinos have been reported by foreign 

and domestic law enforcement.19 The growth of the 

casino industry in recent years has been driven primarily 

by Native American tribes. A primary concern is to 

ensure that tribal gaming commissions understand their 

BSA compliance responsibilities. 

Strategy

FinCEN and the IRS will develop an aggressive 

outreach and supervisory campaign to reach as 

broadly as possible across the expanding universe of 

casinos to enforce established AML programmatic, 

reporting, and recordkeeping requirements. The law 

enforcement community will work through the Indian 

Gaming Working Group (IGWG), led by the FBI, to 

monitor tribal casinos for criminal conduct. 

Action Items

FinCEN will leverage Federal supervision and 

enforcement resources by working with State 

and Tribal authorities to harmonize regulatory 

obligations, share information, and coordinate 

enforcement actions.

FinCEN, in conjunction with the IRS, will enhance 

outreach to the Native American casino regulatory 

community to ensure the Native American tribes 

that own casinos fully implement the applicable 

BSA requirements, and to alert the sector to money 

laundering and terrorist financing indicators.

FinCEN and the IRS will continue to implement 

a revised examination methodology to identify 

potentially non-compliant casinos. This new 

approach incorporates input from the casinos 

themselves, other regulators, and here law 

enforcement.20 

The FBI will continue to lead the IGWG to identify 

investigative priorities and allocate resources 

for investigations of Tribal casinos. The IGWG 

consists of representatives from the FBI’s financial 

crimes, public corruption, and organized crime 

programs as well as representatives from other 

Federal agencies.

•

•

•

•

19 For more information on money laundering using casinos see Appendix A.

20 The IRS Tax Exempt and Government Entities – Office of Indian Tribal Governments is responsible for: (1) identifying all Tribal casinos 

subject to BSA regulation; (2) conducting and documenting BSA outreach; (3) maintaining a compliance database; and (4) assisting IRS 

SB/SE BSA with Tribal protocol issues and BSA examination case selection. The IRS SB/SE BSA unit is responsible for conducting BSA 

examinations of Tribal casinos.
GOAL 7 2007 National Money Laundering Strateg

10 G O A L 7 

Goal 7: 

Imple

Anti-Mo

Re

Insura

Threats and Vulnerabilities:

I

nsurance companies are among a broad class of 

nonbank financial service providers that offer a 

wide variety of financial products. In addition 

to traditional insurance policies, insurers today also 

market savings and investment products and tax 

planning services. These various financial products 

and services can offer criminals opportunities for 

money laundering.21 A number of money laundering 

methods have been used to exploit insurance products, 

primarily life insurance policies and annuities. 

 

Strategy

Regulatory, supervisory, and law enforcement agencies 

will coordinate to enforce regulations that extend 

AML programmatic, reporting, and recordkeeping 

requirements to the insurance industry. 

Action Items

FinCEN will provide outreach and training to the 

insurance industry to advise on the implementation 

of two recent regulations regarding BSA 

compliance obligations. Under the new rules, 

certain U.S. insurance companies are required 

to establish AML programs and file SARs. The 

final rules apply to insurance companies that 

issue or underwrite certain products that present 

an increased risk for money laundering and other 

illicit activity. 

•

FinCEN, in conjunction with the Federal 

banking regulators, will provide guidance on the 

application of the recent insurance rules to banking 

organizations that underwrite or sell insurance 

products and are already subject to BSA compliance 

obligations under the banking laws.

OFAC will work with State regulators and the 

National Association of Insurance Commissioners 

to promote detection and prevention of money 

laundering schemes that may involve violations of 

U.S. trade and economic sanctions.

IRS SB/SE BSA will work to sign an informationsharing MOU with State insurance regulators. The 

MOU provides both the IRS and the participating 

State the opportunity to leverage resources for BSA 

examinations, training, and outreach. FinCEN 

and the IRS are also developing examiner training 

materials. 

•

•

•

21 For more information on money laundering using insurance products and U.S. countermeasures see Appendix A.
2007 National Money Laundering Strateg  GOAL

G O A L 8 11

Goal 8: 

Sup

Anti-Mo

Capacity

Enf

Threats and Vulnerabilities:

Countries with lax AML regulation and

enforcement pose a national security threat to 

the United States by providing a safe haven for 

criminal enterprise. New payment and communications 

technologies are opening up the world to transnational 

crime and creating new options for cross-border funds 

transfers. 

Strategy

The United States will work to detect, disrupt, 

dismantle, and defeat money laundering networks 

globally by promoting transparency in the international 

financial system and encouraging cooperation and 

coordination among diplomatic, financial, and law 

enforcement authorities. The United States will 

provide education, training, and support for countries 

seeking to protect themselves from money laundering 

and will work against countries that facilitate money 

laundering. 

Action Items

U.S. law enforcement agencies will continue to 

devote resources to training foreign counterparts in 

the investigation of sophisticated money laundering 

methods. Transnational crime presents a growing 

challenge to the U.S. law enforcement community, 

requiring support from investigators and law 

enforcement agencies worldwide that understand 

modern crime fighting techniques. 

DEA, through its co-chairmanship of the 

International Drug Enforcement Conference 

(IDEC), a forum of 57 countries represented by the 

senior drug enforcement official for each country, 

will implement, through the IDEC, a global money 

flow strategy designed to identify and attack the 

flow of illegal drug money as it transits the globe 

from countries of drug abuse to countries of drug 

supply and bank secrecy havens.

•

•

ICE, through its 56 international attaches, will 

continue to provide technical assistance and 

investigative support to foreign counterparts to 

facilitate international investigations into money 

laundering, bulk cash smuggling, and other 

transnational financial crimes. 

FinCEN will assist in the development of financial 

intelligence units that will receive, analyze, and 

disseminate financial intelligence to domestic law 

enforcement and share financial information with 

foreign counterparts.

The Departments of the Treasury, State, Justice, 

and Homeland Security, the Federal functional 

regulators, and the law enforcement community, 

will work bilaterally, regionally, and through 

multilateral organizations, in support of the 

Financial Action Task Force (FATF) 40 

Recommendations and Nine Special 

Recommendations for preventing money 

laundering and terrorist financing.

The Department of State will continue to design, 

coordinate, and support efforts to develop 

comprehensive AML regimes globally, regionally, 

and bilaterally with the interagency community 

and through multilateral organizations including 

the United Nations Global Programme Against 

Money Laundering, the Organization of American 

States, the Pacific Islands Forum, and the FATFStyle Regional Bodies. 

The Federal bank regulators will continue to provide 

training and technical assistance to foreign bank 

supervisory officials for the development of AML 

compliance programs and program supervision.

The Treasury, in consultation with the Departments 

of State and Justice, and other agencies as 

appropriate, will use Section 311 of the USA 

PATRIOT Act to safeguard our financial system 

from foreign money laundering threats. Under 

this authority, U.S. financial institutions may be 

required to take one or more special measures 

when dealing with a foreign jurisdiction, financial 

institution, class of transaction, or type of account 

designated to be of primary money laundering 

concern. 

•

•

•

•

•

•
GOAL 8 2007 National Money Laundering Strateg

12 G O A L 8 

In conjunction with the National Strategy to 

Internationalize Efforts against Kleptocracy, launched 

in August 2006, the U.S. Government will employ its 

tools and authorities to target, trace, seize, and forfeit 

assets misappropriated by current and former senior 

foreign government or political officials, their close 

associates, and immediate family members or other 

politically exposed persons and deny them access to 

the international financial system. 

The Treasury, in collaboration with the Department 

of State, the Federal banking regulators, and other 

agencies as appropriate, will work directly with the 

private sector on AML program implementation 

in regions of global strategic significance. This 

initiative complements the development and 

implementation of jurisdictional AML controls. 

The Treasury will continue working closely with 

the International Monetary Fund (IMF) and the 

World Bank Group to promote member country 

programs against money laundering and will 

continue to help guide improvements through 

targeted technical assistance both directly and 

through the IMF and World Bank. By the end of 

2005, the IMF and World Bank had conducted 

more than 50 assessments of member countries’ 

compliance with the standards of the FATF and 

had provided technical assistance on related 

projects in more than 125 countries. The Treasury 

is also working with the multilateral development 

banks to strengthen their internal controls, and is 

encouraging the regional development banks to 

carry out internal risk assessments similar to those 

undertaken by the World Bank. 

•

•

•
13

2007 National Money Laundering Strateg  GOAL

G O A L 9

Goal 9: 

Improve

Our

Threats and Vulnerabilities

Measuring the scope of the money laundering 

threat and the effectiveness of law 

enforcement and regulatory countermeasures 

remains a challenge. There are no objective, quantitative 

benchmarks that provide a starting point because of the 

unreported volume of financial crime. All efforts to 

quantify the problem are estimates. 22 

Strategy

Traditional measures of our effectiveness against 

money laundering, such as the volume of seized 

or forfeited assets, indictments, and BSA filings, 

although imperfect, do offer useful information 

and are indicators of the progress the United States 

is making against money laundering. The United 

States must work toward more effectively identifying 

and connecting criminal activity, illicit cash, money 

laundering methods, cases, and outcomes. 

Action Items

OCDETF will support the compilation of money 

laundering prosecution statistics by providing 

data contained in its management information 

system regarding results achieved in OCDETF 

designated cases. OCDETF collects data on 14 

primary money laundering activity categories 

to evaluate the program’s progress toward 

attacking the financial infrastructure of major drug 

trafficking organizations. These 14 categories 

cover the most prevalent and sophisticated money 

laundering methods used by major drug trafficking 

organizations.

•

ICE will compile investigative data, using the 

Treasury Enforcement Communications System 

(TECS II), which serves as the ICE investigative 

database for case management. TECS II contains 

data relating to transnational and cross-border 

financial crimes, including bulk cash smuggling 

violations, cases involving failure to file a Report 

of International Transportation of Currency or 

Monetary Instruments (CMIR)23, and money 

laundering cases. 

FinCEN and other offices of the Treasury will 

work with the Federal law enforcement community 

to develop a process to evaluate and report on 

law enforcement’s use of BSA reporting in their 

investigations. This information will provide 

meaningful feedback to the financial community on 

the value of this information to law enforcement, 

and will assist institutions in the enhancement of 

their AML and Suspicious Activity Reporting 

programs.

•

•

22 The FATF Mutual Evaluation Report (MER) of the United States, supra note 1 and accompanying text, measures the U.S. AML/CFT 

 regime against the FATF 40 Recommendations and 9 Special Recommendations and is a significant benchmark of the effectiveness of 

 the U.S AML/CFT system. .

23 31 U.S.C. 5316 requires individuals to report the transport or transfer of more than $10,000 in currency or monetary instruments into or out 

of the United States.
14 I N T R O D U C T I O N

Appendix A - U.S. Money Laundering Threat Assessmen

Appendix B - Money Laundering Statis

Appendix C - Law Enforcement Data and Intelligence Cente

Appendix D - Strategic Use of Asset Forfeit

Lit 
15

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

Appendix A: U.S. Money Laundering Threat Assessment

Introduction...................................................................................................................................... 1

Banking ............................................................................................................................................... 20

Money Services Businesses...................................................................................................... 2

 Money Transmitters............................................................................................................ 3

 Check Cashers ...................................................................................................................... 33

 Currency Exchangers ......................................................................................................... 3

 Money Orders........................................................................................................................ 3

 Stored Value Cards ............................................................................................................. 39

Online Payment Systems ........................................................................................................... 4

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

Bulk Cash Smuggling................................................................................................................... 50

Trade-Based Money Laundering ........................................................................................... 57

Insurance Companies .................................................................................................................. 6

Shell Companies And Trusts.................................................................................................... 6

Casinos................................................................................................................................................ 6

Appendices

 (A) NDIC Analysis................................................................................................................. 7

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

 (C) Bank Secrecy Act Reports.......................................................................................... 85

(D) Status of BSA Regulations for Financial Institutions....................................
1

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

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

•

•

•

•

•

•
17

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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” 

•

•

•

•

•

•

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 transmitters), 

securities dealers, and others. 
18

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

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. 

✷

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 

1 The United States Coast Guard.
19

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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. 
20

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

Chapter 1

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, 

2 The 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. 5 The 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.

16 Money 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.
23

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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 

•

•

•

•

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 

19 Testimony 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.
2

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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.

25 The 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. 

26 Vartanian, 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. 
25

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U.S. Money Laundering Threat Assessmen

Rank State/Territory Filings 

(Overall)

Percentage 

(Overall)

1 California 351,784 2

2 New York 167,635 11.

3 Texas 92,168 6.

4 Florida 89,413 6

5 Illinois 51,004 3.

6 Arizona 48,691 

7 New Jersey 41,403 2.

8 Pennsylvania 37,765 2.

9 Ohio 34,634 2

10 Michigan 34,506 2

Violation Type Filings 

(Overall)

Percentage 

(Overall)

BSA/Structuring/Money Laundering 769,502 48

Check Fraud 185,839 11.65

Other 136,021 8.52

Credit Card Fraud 77,970 4.8

Counterfeit Check 74,891 4

Check Kiting 55,940 3.

Unknown/Blank 46,783 2.9

Defalcation/Embezzlement 46,323 2.

Mortgage Loan Fraud 40,016 2.5

Consumer Loan Fraud 27,240 1.71

False Statement 26,724 1.

Misuse of Position or Self Dealing 18,46

Wire Transfer Fraud 17,634 1.

Mysterious Disappearance 17,375 1.0

Debit Card Fraud 11,315 Less than 1

Commercial Loan Fraud 10,699 Less than 

Identity Theft* 10,188 Less than 1

Computer Intrusion* 8,319 Less than 1

Counterfeit Credit/Debit Card 6,573 Less tha

Counterfeit Instrument (Other) 5,142 Less than 

Bribery/Gratuity 1,799 Less than 

Terrorist Financing* 971 Less than

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
2

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A P P E N D I X A 

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Chapter 2

Money 

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). 
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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 MSBs

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.

35 More than one violation may be identified on a single SAR.
28

APPENDIX A

A P P E N D I X A 

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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 10/1/02-1

Ranking State % of MSB 

SARs Filed* % of US MSB SARs

#1 New York 17%

49

#1 California 1

#2 Arizona 9

#3 Texas 8%

#4 Florida

25%

#5 Colorado 4

#6 New Jersey 

#7 Massachusetts 3%

#8 Georgia 3

#9 Illinois 

*Percentages rounded to nearest whole number.
29

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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.
30

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

Mone

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. 

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. 38 The 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.
31

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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 Concentration

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 traffick

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

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

Table 
32

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

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.

NY 31.6 1.

PA 6.6 0

Total 112.6 3.4

*Millions of U.S. Dollars

Table 5
33

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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. 
3

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

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, 
35

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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 

milli

1 --

Table 

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. 
3

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

Money

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.
37

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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 

order-related 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;

•

•

•

•
38

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

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. 
39

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

Stored 

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.
4

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A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

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.

49 Even 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.

50 A 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).

51 The 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).
4

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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.

56 Bank 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.
4

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessment 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-

H

customers

igh frequency Float57, increase

sales

BMPE-style ML58: 

exchanging cash for

cards/Use as alternative

currency/Distributi

method is cash intensi

creating ML threa

Phone serv

Retailer-specific and

ice card

Gift cards:

Multiple 

Merchants

Multi-merchant gift card

can be used for purchases 

only (no ATM)/Can be

payment network branded

Gift givers Float, sales, and transaction fees59 Money laundering through bulk card acquisition and resale Ma

Payroll cards

Creates account to 

facilitate direct depo

Cards can be used at ATM 

& POS6

who are be

Unbanked workers 

ing pai

by cash or check

Fee income (lower

cost to employer)

Fraudulent businesses

could use to pay 

terror

money

sts or launder Variou

Remittance cards

Cards are issued for

friends & family to use a

cross-border ATM & POS

Individuals wh

send cross-border 

remittance

Fee incom

Provides anonymous

funds for purchases or 

cross-border access to 

cash

Various

General use cash 

cards

Debit card good at ATM &

POS to access pre-funded 

account qual

& those unable to 

Unbanked, teens, 

ify for credi

card

Fee incom

Provides anonymous

funds for purchases or 

cross-border access to 

cash

Various

Function-specific 

cards t

Replaces paper money, 

ickets, and forms for a

variety of functio

Businesses &

government 

agencies processin

high volume of

cash, checks or 

vouchers

process

Lower cost 

ing None apparen

Transit systems/ Health

savings accounts

Govt. benefit programs

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

Table 7
4

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

Chapter 3

Onli

Sy

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.

62 When 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. 

63 The 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.”
APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

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 K

(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 on

year perio

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

outstanding members who are well known, have shown to

be beyond reproach and who head outstandingly uprigh

operations, pillars of the indus

• Palladium - Awarded to long-serving Committee membe

and officers of the GDCA who qualify for Platinum awards.

Points may be earned or lost [at the discretion of the GDC

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

Figure 

65 E-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. 66 Accessed 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. 69 Money 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.
4

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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 

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.” 73 Most jurisdictions, including the U.S., have not established a licensing or regulatory framework for online payment systems with no 

 physical 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.

systems to adopt and adhere to FATF AML policies and 

procedures, any single jurisdiction acting alone may 

have only limited success in this regard. 

 
APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

Chapter 4

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 money 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 in74 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). 75 Although 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.

formation 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 

BASIC HAWALA 

MARWAN 

USA 

AMJAD 

PAKISTAN 

HAWALADAR 

IN USA 

HAWALADAR 

IN PAKISTAN 

Illustration of a basic IVTS process
4

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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

of this sector. 

Bank Secrecy Act Dat

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 Dat

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-

•

•

•

•

•

•
4

APPENDIX A

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Case Example 

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. 
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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. 81 The 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.
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Chapter 5

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 

•

•

•

82 Mexican 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 

Bulk Cash Smuggling to Canada 

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.

 
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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 

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. 

•

•

•

•

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 

Smugglers’ Route: U.S. Interstate 59

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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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 

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. 

85 Fisk, Daniel W., Deputy Assistant Secretary State for Western Hemisphere Affairs, Statement Before the Senate Committee on Foreign 

 Relations, April 6, 2005.

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

 RL32539, August 20, 2004.

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
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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 passengers, 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:

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). 98 Weiss, 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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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. 

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 Monet

Instruments (2001-2003)

2001 2002 2003

Texas 140 Texas 130 Texas 12

California 122 California 126 Califor

New York 122 New York 81 New York 78

Illinois 113 Illinois 71 Illin

Georgia 76 Georgia 56 Georg

Ohio 60 Ohio 48 Flor

Michigan 57 Floria 44

Florida 48 Michigan 43 Tenness

Missouri 48 Tennessee 32 Michig

North Carolina 47 Missouri 31 Ariz

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

Instruments (2001-2003)

2001 2002 2003

California 328 Texas 244 Texas

Texas 304 California 238 Californi

Florida 115 Arizona 89 Arizona

Arizona 111 Florida 63 Florid

Illinois 57 Unknown 41 Georgi

Nevada 31 Georgia 25 New York 3

Tennessee 31 New York 25 Illinois 

Georgia 28 Illinois 24 Tennesse

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 Cente

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 $ Amoun

Concealment 

Method

Number of 

Seizures

Amount in 

Millions

Concealment 

Method

Number of 

Seizures

Amount 

in 

Millions

Unconcealed 561 $243.0 Unconcealed 561 $2

Other bag* 317 $50.4 Other bag* 317 $50

Suitcase 199 $33.4 Car/Truck 194 $

Car/Truck 194 $37.4 Suitcase 199 $

Express 

package 170 $31.8 Express package 170 $31.8

On body 139 $7.7 Bus/Train/Cycle 108 $30

Other 124 $23.2 Other 124 $23

Bus/Train

Cycle 108 $30.4 Unidentified 43 $13

Clothing 86 $4.0 Cargo 15 $

Box 45 $9.1 Box 45 $9

Unidentified 43 $13.8 On body 139 $7.

Camper 30 $6.3 Trunk 14 $7

Cargo 15 $9.9 Camper 30 $6.

Mail parcel 14 $4.3 Mail parcel 1

Trunk 14 $7.1 Clothing 86 

Body Cavity4 $0.4 Cargo Container 2 

Vessel $0.6 Vesse 4 

Aircraft 2 $0.2 Body Cavit 4 

Cargo 

Containe

2 $0.7 Aircraft 2 $0.

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

National Engineering and Environmental Laboratory Special Programs Department, Nove

2004

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

Table 10
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Chapter 6

Trade-ba

La

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. 

101 Zarate, 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.

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

 Narcotics Control, March 4, 2004.

103 Tishler, 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. 106 Roth, 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.
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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. 109 Yager, 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. 110 Zarate, 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 

112 Zarate, 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 

 
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Chapter 7

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 
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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.
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Chapter 8

SHELL COMPANIES AN

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. 
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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 5) 

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. 125 Crawford, 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. 127 The date financial institutions were mandated to file Suspicious Activity Reports 128 The 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.
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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. 
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A Side by Side Comparison of Wyoming and Nevada and Delawar

Benefits Nevada Wyoming Delawar

Minimal annual fees

One-person company is allowed ✗ ✗ 

Stockholders are not revealed to the State ✗ ✗ ✗

No annual report is required until the anniversary of 

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 

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#comp

Figure 
6

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A P P E N D I X A

U.S. Money Laundering Threat Assessmen

Chapter 9

C

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.

133 Racinos 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.

134 The 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. 136 MSNBC, Tribal Casino Revenues Double Nevada’s, Feb. 15, 2005. Accessed at: http://www.msnbc.msn.com/id/6976517/.

Chart 1
6

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A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

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. 138 Many 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).
6

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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). 140 The 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.

141 The 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.
70

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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.

•

•

•

1.

2.

3.

4.

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 

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.
71

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Suspicious Activity Report 

by Casinos & Card Clubs (SAR-C) Filings by Type of Gaming Establishment August 1, 1996 through December 3

Type of Gaming 

Establishment 1996 1997 1998 1999 2000 2001 2002 2003 2004

State Licensed Casino - 22 288 262 309 1,215 1,621 4,3

Tribal Licensed Casino - 21 117 112 115 114 120 53

Card Club - - 3 3 1 1 9 19 27Other - - - 3 - - - 1 1Unspecific/Blank 85 2 152 70 45 48 84 165Unspecific/Blank 85 2 152 70 45 48 84 165

Source: Financial Crimes Enforcement Netw

Table 11
72

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U.S. Money Laundering Threat Assessmen

Appendix A

NDIC A

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 

top ranked cities for asset seizures. (See Table 13)

Region Score Ranking

New York 1.92 1

Miami 3.4

Los Angeles 3.74 

Phoenix/Tucson 6.

Houston 8.12 5

Boston 8.50 

Detroit 8.52 

San Juan 8.55 8

Atlanta 8.60 

Chicago 8.85 1

Table 12
73

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A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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 PR4 N 4 

NJ 5 NY 5 FL 5 GA 5

PR PR6 N

 Source: Federal Drug Seizure Syste

Table 13
7

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen
75

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

Appendix B

Fince
7

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen
77

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen
78

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen
79

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

Top Ten Suspicious Activity Report 

Filing Locations

January 2004 to Present

Depository Institution SARs SAR-C

Filer City Count Filer City Count

New York, NY 28,187 Atlantic City, NJ 2,

Los Angeles, CA 19,379 Las Vegas, NV 98

Wilmington, DE 11,796 Biloxi,

Phoenix, AZ 11,329 Uncasville, CT 2

Houston, TX 10,444 Bossier City, 

Salt Lake City, UT 8,757 Detroit, MI 2

San Francisco, CA 8,633 Lawrenceburg, IN 

Chicago, IL 7,385 Elizabeth, IN

Las Vegas, NV 7,223 Niagara Falls, NY 1

Brooklyn, NY 7,005 San Juan, PR 13

SAR-MSBs SAR-SFs

Filer City Count Filer City Count

New York, NY 21,259 New York, NY 1,16

Phoenix, AZ 14,678 Bellevue,

Houston, TX 14,071 Boston, MA 6

Los Angeles, CA 12,538 Minneapolis, MN 

Flushing, NY 11,717 San Francisco, CA

Brooklyn, NY 10,025 Rancho Cordova, CA 4

Mountain View, CA 9,160 Chicago, IL

San Jose, CA 8,458 Jersey City, NJ 2

Chicago, IL 7,236 Miami, FL

Bronx, NY 7,140 Houston, TX 10
80

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

Top Ten Suspicious Activity Report 

Filing Locations 

January 2004 to Present (Continued)

Top Ten Suspicious 

Activity Report 

(All SAR Forms) Filing 

Locations

January 2004 to Present

Top Ten Currency 

Transaction Report 

Filing Locations

January 2004 to Present

Filer City Count Filer City Count

New York, NY 50,607 Los Angeles, CA 471,5

Los Angeles, CA 31,917 New York, NY 352,183

Phoenix, AZ 26,007 Chicago, IL 336

Houston, TX 24,618 Houston, TX 281,

Brooklyn, NY 17,101 Las Vegas, NV 198,27

Flushing, NY 15,789 Miami, FL 195

Chicago, IL 14,851 Brooklyn, NY 185,

Wilmington, DE 11,796 Dallas, TX 15

San Jose, CA 11,362 Philadelphia, PA 138,

San Diego, CA 9,168 San Francisco, CA 138,

Top Ten Currency Transaction 

Report by Casino 

Filing Locations

January 2004 to Present

Top Ten Form 8300 Filing Locations

January 2004 to Present

Casino City Count Business Location Count

Las Vegas, NV 190,358 West Hempstead, NY 7,783

Atlantic City, NJ 93,280 Miami, FL

Uncasville, CT 26,072 New York, NY 5,9

Biloxi, MS 22,951 Long Island City, NY 3,

Mashantucket, CT 17,098 Jersey City, NJ 3,2

Robinsonville, MS 16,721 Houston, TX 2,

Reno, NV 16,153 Bronx, NY 2,7

Detroit, MI 15,269 Farmingdale, NY 2

Temecula, CA 12,778 Las Vegas, NV 2,38

Pala, CA 10,857 Des Moines, IA 2,25
81

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

Top Ten Suspicious Activity Report 

Filing Locations 

January 2004 to Present (Continued)

Top Ten Outbound CMIR Filing 

Locations

January 2004 to Present

Top Ten Inbound CMIR Filing

Locations

January 2004 to Present

Exported From 

City Count Imported To City Count

New York, NY 4,255 Miami, FL 3

Los Angeles, CA 4,059 Los Angeles, CA 27,15

Miami, FL 3,354 New York, NY 10,

Chicago, IL 1,911 San Francisco, CA 8,

Atlanta, GA 1,901 Chicago, IL 5,97

Detroit, MI 1,868 Atlanta, GA 5,

Hidalgo, TX 1,624 Houston, TX

Boston, MA 999 Detroit, MI 4,

Houston, TX 94  Fort Lauderdale, FL 3,9

San Juan, PR 815 Washington, DC 3,83
82

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

149 The violation type “Check Fraud” does not occur on the Money Services Business SAR form. 150 The 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 Present

BSA/Structuring/

Money Laundering Check Fraud149 Credit/Debit CardFraud150

Filer City Count Filer City Count Filer City Count

New York, NY 60,802 Sioux Falls, SD 1,901 Phoenix, AZ 7

Los Angeles, CA 32,747 Chicago, IL 1,556 Wilmington, DE

Flushing, NY 30,768 New York, NY 1,477 Salt Lake City, UT 

Houston, TX 23,258 Los Angeles, CA 948 Sioux Falls, SD 2,

Phoenix, AZ 20,066 Houston, TX 695 New York, NY 

Brooklyn, NY 18,294 Brooklyn, NY 549 Las Vegas, NV 1,2

Chicago, IL 10,307 Philadelphia, PA 515 Minneapolis, MN

Philadelphia, PA 9,845 Atlanta, GA 500 Milwaukee, WI

San Diego, CA 9,224 Las Vegas, NV 476 Omaha, N

Newark, NJ 9,018 Dallas, TX 465 New Albany, OH 

 BSA/Structuring/ Check Fraud149 Credit/Debit Car

Money Laundering Fraud150

Filer City Count Filer City Count Filer City Count
83

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

Top Five Suspicious Activity Report

(All SAR Forms) Violation Types Grouped by Area

January 2004 to Present (Continued)

Mortgage Loan Fraud151 Identity Theft152

Filer City DCN Count Filer City DCN Cou

Ann Arbor, MI 3,225 Wilmington, DE 8,

San Francisco, CA 2,567 Salt Lake City, UT 5,

Seattle, WA 2,346 Phoenix, AZ 5,

Calabasas, CA 1,710 Sioux Falls, SD 3,4

New York, NY 1,331 Las Vegas, NV 1,7

Pasadena, CA 1,302 New York, NY 1,229

Miamisburg, OH 1,172 Draper, UT 8

West Hills, CA 1,000 Calabasas, CA 6

Littleton, CO 796 Glen Allen, VA

Charlotte, NC 750 Columbus, OH 41

151 The 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.

152 The 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 
8

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen
85

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

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. 4

Report of Foreign

Bank and Financia

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

these accounts exceeds $10,000 at any time during the calendar yea

219,105

IRS Form 8300, 

Report of Cash 

Payments Over 

$10,000 Received

in a Trade or

Busines

Filed by persons engaged in a trade or business who, in the course of t

trade or business, receives more than $10,000 in cash in one transactio

two or more related transactions within a twelve month per

152,68

Suspicious Activ

Report (SAR)

Filed by depository institutions on transactions or attempted transa

involving at least $5,000 that the financial institution knows, suspects, or 

has reason to suspect:

involve money derived from illegal activ

are intended or conducted in order to hide or disguise fund

assets derived from illegal activ

are designed to evade BSA requirements or other financial reporting 

requirements (structuring); 

have no business or apparent lawful purpose.

•

•

•

•

381,67

Suspicious Activ

Report Casino

(SARC)

Filed on transactions or attempted transactions conducted or attempt

by, at, or through a casino/card club, and involving or aggregating at le

$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 transaction

involve money derived from illegal activ

are intended or conducted in order to hide or disguise fund

assets derived from illegal activ

are designed to evade BSA requirements or other financial reporting 

requirements (structuring)

have no business or apparent lawful purpose; o

involve the use of the casino/card club to facilitate criminal ac

•

•

•

•

•

5,75

Report of 

International

Transportation

of Currency 

or Monetary 

Instruments (CMIR)

Filed by individuals or businesses who transport, or cause the transport

of, $10,000 or more in currency or other negotiable instruments into or 

of the United States

149,9

Appendix C

BANK SECRECY ACT
8

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

Report Requirements Filed in CY 200

Registration o

Money Services

Busines

Each money services business (MSB) must register except for (1) one that

a money services business solely because it serves as an agent of anoth

MSB, (2) the U.S. Postal Service, and (3) issuers, sellers, and redeemers o

stored value.

10,25

Suspiciou

Activity Report b

Money Services

Businesses (SARMSB

Filed on transactions or attempted transactions conducted or attempted b

at, or through an MSB, and involving or aggregating funds or other asse

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 transaction

• involve money derived from illegal acti

• are intended or conducted in order to hide or disguise fund

assets derived from illegal activi

• are designed to evade BSA requirements or other financial reporting 

requirements (structuring)

• have no business or apparent lawful purpose; o

• involve the use of the MSB to facilitate criminal ac

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 o

at least $5,000.

296,2

Suspicious Activ

Report by the 

Securities 

Futures Industries

(SAR-SF)

Filed on transactions, or attempted transactions, if it is conducted by

or through a broker-dealer, a futures commission merchant (FCM), or a

introducing broker in commodities (IB-C) and it involves or aggregates

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 fund

derived from illegal activities, is intended or conducted in order to

disguise funds or assets derived from illegal activity, is designed t

BSA requirements (structuring), has no business or apparent lawful purpos

or involves use of the broker-dealer/FCM/IB-C to facilitate criminal act

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 wh

the particular customer would normally be expected to engage, and the

broker-dealer knows of no reasonable explanation for the transaction afte

examining the available facts. Also filed when the transaction involves the 

use of the broker-dealer to facilitate criminal act

5,705

Designation o

Exempt Person

Used by bank or other depository institution to designate an el

customer as an exempt person from currency transaction reporting rules. 67,

 Source: FinCE
87

APPENDIX A

A P P E N D I X A

U.S. Money Laundering Threat Assessmen

Appendix 

Sttus ofBSA

A QUICK GUIDE TO THE STATUS OF BANK SECRECY ACT (BSA /  USA PATRIOT ACT REGULATIONS FOR FINANC

INSTITUTIONS IN THE U.S (as of August 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 N

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

Currently 

exempt under 

31 CFR § 

103.170.

Proposed AML and SAR 

Rules are at 68 FR 848

(Feb. 21, 2003] and 67

FR 64067 (Oct. 17, 2002

Final AML and SAR Rules i

preparation

No No No Yes No

Securities 

BrokerDealerYes

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 issue

on February 24, 2003. No No No Yes N

Investment 

Advisers

Currently 

exempt under 

31 CFR § 

103.170

Proposed AML Rule at 68

FR 23640 (May 5, 2003). No No No Yes 

Pawn Brokers

Currently 

exempt under 

31 CFR § 

103.170.

Proposed rules in

preparation. No No No Yes N

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

153 The 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.
88

APPENDIX A

A P P E N D I X A 

U.S. Money Laundering Threat Assessmen

A QUICK GUIDE TO THE STATUS OF BANK SECRECY ACT (BSA /  USA PATRIOT ACT REGULATIONS FOR FINANC

INSTITUTIONS IN THE U.S (as of August 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. 606

(Sept. 26, 2002

No No No Yes No

Mutual Funds Yes

Title 31 CFR § § 103.

23, 24, 130 and 13

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 N

Dealers in

Precious 

Metals, 

Stones or 

Jewels

Yes 31 CFR § 103.23, 24,

140 Yes No No Yes N

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. 2

2003).

No No No Yes No

Casinos Yes

Title 31 CFR § § [103.11,

21, 22, 23, 24, 36 an

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 1

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 

Investment 

Companies 

(other than 

mutual 

funds)

Currently 

exempt under 

31 CFR § 

103.170.

No No No Yes No
Anti-Money Laundering Statist

89

APPENDIX B

A P P E N D I X B

FBI Program FY2002 FY2003 FY2004 FY

White Collar Crime 507 402 500

Organized Crime/ Drug 315 347 26

Criminal Enterprise2 19 8 

Cyber Crime6 10 18 

Violent Crime 7 1 

Other 2 59 54 

TOTAL 856 868 881

Table 1 FBI money laundering informations3 and indictments, FY2002-FY20

FY2002 FY2003 FY2004 FY

Arrests 429 342 353 2

Convictions 731 512 45

Restitution $2.1b $706m $2.1b $

Recoveries4 $18.1m $15.6m $1.9m $10

Fines $11.3m $108.1m $29.4m $15.

Table 2 FBI money laundering-related statistics, FY2002 – FY20

FY2003 FY2004 FY2

Investigations 236 253 

Arrests 76 112 1

Table 3 DEA Office of Financial Operations investigative statistics, FY 2003-FY2005

1

 Law enforcement agencies working together on investigative task forces may report the same convictions, forfeitures, and other relevant money laundering 

 statistics in individual agency data. 

2

 A “criminal enterprise” in this context refers to violent gangs and theft rings

3

 A grand jury must approve an indictment, while a prosecutor can issue an “information” without grand jury approval. Both accuse the defendant of 

 committing a crime. 

4

 A “recovery” involves funds intercepted by the FBI before being accessed by a criminal enterprise. A recovery may involve judicial proceedings.

Appendix B: Anti-Money Laundering Statistics1
Anti-Money Laundering Statist

90

APPENDIX B

A P P E N D I X B 

FY2003 FY2004 FY2005 FY2

(as of 8/31/2006)

Investigations Initiated 1590 1789 163

Indictments

Information

1041 1304 1147

Sentenced 667 687 782 

Forfeitures 600 1593 

Forfeiture Amount $123.3

FY2003 FY2004 FY2

Arrests 314 421 

Indictments 360 499 

Table 5 ICE prosecutions for money laundering offences (18 U.S.C. 1956 and 1957).5

FY2003 FY2004 FY2

Arrests 87 58 32

Indictments 124 133 

Convictions 125 142 

Table 6 ICE prosecutions for bulk cash smuggling (31 USC 5332).

FY2003 FY2004 FY2

Arrests 48 31 

Indictments 31 34

Convictions 18 28

Table 7 ICE prosecutions for operating an unlicensed Money Services Business 

(18 U.S.C. 1960)

5

 USC 1956 criminalizes the laundering of the proceeds of specified unlawful activity in certain specified situations and 18 USC 1957 criminalizes the 

spending of proceeds of crime without the additional requirement (as in section 1956) that this spending be accompanied by criminal intent.

$73.3m $59.7m

Table 4 IRS-CI Money Laundering Statistics, FY 2003-2006 (as of 8/31/06
Anti-Money Laundering Statist

91

APPENDIX B

A P P E N D I X B

Defendants Sentenced In FY2003 With 18 U.S.C. 1956 On Any Count Of Convicti

Count Col%

Bank Robbery 1 0.1%

Drugs: Trafficking 277 29.00%

Firearms: Use 1 0.1

Larceny 3 0.3%

Fraud 6 4.

Embezzlement 1 0.10%

Money Laundering 596 62

Racketeering 29 3.00

Immigration 1 0.1

TOTAL 955 100%

Table prepared by the Department of Justice Office of Policy and Legislation, Criminal Division, from 

data provided by the U.S. Sentencing Commis

Table 8 18 USC 1956 criminalizes the laundering of the proceeds of specified unlawful 

activity in certain specified situations.

Defendants Sentenced In FY2003 With 18 U.S.C. 1957 On Any Count Of Convicti

Count Col%

Murder 1 0.61

Drugs: Trafficking 16 9.82

Larceny 5 3.10%

Fraud 37 22.70%

Embezzlement 2 1.20%

Forgery/Counterfeiting 1 0.

Money Laundering 97 59.50

Racketeering 1 0.6

Immigration 1 0.

Administration of Justice Related 1 

TOTAL 163 100

Table prepared by the Department of Justice Office of Policy and Legislation, Criminal Division, from 

data provided by the U.S. Sentencing Commis

Table 9 18 USC 1957 criminalizes the spending of proceeds of crime without the additional 

requirement (as in section 1956) that this spending be accompanied by criminal intent.
Anti-Money Laundering Statist

92

APPENDIX B

A P P E N D I X B 

Defendants Sentenced In FY2003 With 18 U.S.C. 1960 On Any Count Of Convicti

Count Col%

Drugs: Trafficking 1 5.60

Money Laundering 14 77.8

Immigration 1 5.

Administration f  Justice Related 1 

National Defense 1 5.6

TOTAL 18 100.00%

Table prepared by the Department of Justice Office of Policy and Legislation, Criminal Division, from 

data provided by the U.S. Sentencing Commis

Table 10 18 USC 1960 criminalizes the operation of an unlicensed money transmitting 

business

Defendants Sentenced In FY2003 With 31 U.S.C. 5313 On Any Count Of Convicti

Count Col%

Money Laundering 7 87.50

Immigration 1 12.5

TOTAL 8 100.00%

Table prepared by the Department of Justice Office of Policy and Legislation, Criminal Division, from 

data provided by the U.S. Sentencing Commis

Table 11 31 U.S.C. 5313 criminalizes the failure to file a report on domestic coin and 

currency transactions exceeding $10,000

Defendants Sentenced In FY2003 With 31 U.S.C. 5316 On Any Count Of Convicti

Count Col%

Drugs: Trafficking 1 1.40

Larceny 1 1.40

Fraud 2 2.90%

Money Laundering64 91

Immigration 1 1.

Traffic Violations and Other 1 1.40

TOTAL 70 100.00%

Table prepared by the Department of Justice Office of Policy and Legislation, Criminal Division, from 

data provided by the U.S. Sentencing Commis

Table 12 31 U.S.C. 5316 requires individuals to report the transport or transfer of more 

than $10,000 in currency or monetary instruments into or out of the United States The 

form that must be filed is titled: Report of International Transportation of Currency or 

Monetary Instruments (CMIR). 
Anti-Money Laundering Statist

93

APPENDIX B

A P P E N D I X B

Defendants Sentenced In FY2003 With 31 U.S.C. 5324 On Any Count Of Convicti

Count Col%

Banks: Robbery 1 1.20%

Drugs: Trafficking 7 8.60

Firearms: Use 1 1.20

Fraud 12 14.80

Tax Offenses 2 2.50%

Money Laundering 55 67.9

Immigration 1 1.2

Traffic Violations and Other 2 2.50%

TOTAL 81 100.00%

Table prepared by the Department of Justice Office of Policy and Legislation, Criminal Division, from 

data provided by the U.S. Sentencing Commis

Table 13 31 U.S.C. 5324 makes it crime to structure transactions to avoid the reporting 

requirement on transport or transfer of more than $10,000 in currency or monetary 

instruments into or out of the U.S.

Defendants Sentenced In FY2003 With 31 U.S.C. 5332 On Any Count Of Convicti

Count Col%

Larceny 9.80

Fraud 14.

Money Laundering 23 56.1

Immigration 2 4.

Offenses in Prison 1 2.40

Administration of Justice Related 1 

Traffic Violations and Other 9.80

TOTAL 41 100.00

Source: Table prepared by the Department of Justice Office of Policy and Legislation, Criminal Division, 

from data provided by the U.S. Sentencing Commis

Table 14 31 U.S.C. 5332 makes it a crime for anyone with the intent to evade the 

CMIR requirement to knowingly conceal more than $ 10,000 in currency or monetary 

instruments and to transport or transfer or attempt to transport or transfer such currency 

or monetary instruments into or out of the United States 
Anti-Money Laundering Statist

9

APPENDIX B

A P P E N D I X B 

FY2002 FY2003 FY2004 FY

Defendants convicted of 18 USC 1956 1,034 955 970

Defendants convicted of 18 USC 1957 217 163 178 

TOTAL 1,251 1,118 1,148 1,07

Table 15 Source: Department of Justice Office of Policy and Legislation, Criminal Division

Statute Defendants Cases Defendants Convict

18 U.S.C. § 1956 2219 838 97

18 U.S.C. § 1957 455 291 17

18 U.S.C § 1960 68 45

18 U.S.C. § 982 705 253 16

31 U.S.C. § 5313 28 14 

31 U.S.C. § 5316 109 99 

31 U.S.C. § 5317 39 27 

31 U.S.C. § 5324 219 145 

31 U.S.C. § 5332 152 115 6

TOTAL 3994 1827 157

Table 16 Money laundering-related prosecution statistics for FY2004. Source:

Department of Justice Office of Policy and Legislation, Criminal Division

Federal Regulator BSA/AML Exams 

conducted in FY 200

Formal Enforcement 

Actions6 taken in FY 200

Federal Deposit Insurance Corporation 2,755

Federal Reserve 682 

National Credit Union Association 4

Office of the Comptroller of the Currency 1,530 32

Office of Thrift Supervision 722 1

Internal Revenue Service7 5 

TOTAL 10,409 7

Table 17 Depository financial institution Bank Secrecy Act (BSA) compliance examinations 

and formal enforcement actions taken in FY2005 by Federal banking regulators and

the Internal Revenue Service, which has been delegated the authority to examine, for 

BSA compliance, all financial institutions not currently examined by a Federal functional 

regulator 

6

 A formal enforcement action is a supervisory action used to compel a bank to address serious violations of the law. Examples of these types of actions are 

Orders to Cease and Desist and Civil Money Penalties. Formal actions generally are public. In addition, the regulators took in excess of 2,000 “informal” 

enforcement actions, which relate primarily to technical violations of the BSA requirements. 7

 The IRS has been delegated the authority to examine for BSA compliance all financial institutions not currently examined by a Federal functional regulator. 

This includes the financial institutions listed in Table 18
Anti-Money Laundering Statist

95

APPENDIX B

A P P E N D I X B

Examination Subject FY 2005 FY 2006 (through 7/29/0

Credit Union 8

Casino 21

Card Club 13 9

Check Casher 1,485 1,97

Currency Dealer 26 2

Issuer of Money Orders 65 5

Money Transmitter 1,271 1,77

Nevada Casino 1 

Seller/Redeemer of Traveler’s Checks 752 1,01

Seller/Redeemer of Stored Value Cards 0 11

Tribal Casinos/Card Clubs 3

Undesignated 67 

TOTAL 3,712 4,9

Table 18 IRS SB/SE BSA Civil Examinations Completed
Anti-Money Laundering Statist

9

APPENDIX B

A P P E N D I X B 
97

Law Enforcement Data and Intelligence Centers APPENDIX 

A P P E N D I X C

Appendix C: Law Enforcement Data and Intelligence Center

Name Lead 

Agency

Participating 

Agencies How It Works

Data Analysis

and Research 

for Trade 

Transparency 

System

(DARTTS)

ICE

Customs Services

of Colombia,

Paraguay, Brazil,

and Argentin

DARTTS is an analytical data system tha

identifies anomalies in important and export 

data. It has the ability to track the movemen

of people, money, and cargo into and out of the

United States.

Money 

Laundering

Coordinatio

Center (MLCC)

ICE

MLCC is a depository for intellige

information gathered through undercove

money laundering investigations and funct

as the coordination center for both domest

and international undercover money launderi

operations. MLCC also provides information

investigators about the movement of proceed

through the Black Market Peso Exchange.

Law 

Enforcement 

Support Center

(LESC),

Williston, 

ICE

Federal, State, 

and local law 

enforcement 

communit

Primary users of the LESC are law enforcement

agencies that need information about fore

nationals they may encounter. They can contact

the LESC through the International Justice an

Public Safety Information Sharing Network 

by calling an 800#. LESC receives over 60,0

queries monthly. ICE is exploring the creat

of a bulk cash smuggling center within LESC 

serve as a bulk currency smuggling informatio

deconfliction, and investigative support center.

Blue Lightnin

Operation

Coordinatio

Center (BLOCC)/

Gulf Coast 

HIDTA, Gulfport, 

MS

ICE

Federal, State 

and local law 

enforcement 

agencies in LA, AL

MS, GA, AR, NC, 

SC, TN, and part of 

Texas have access 

to TECS

Responds to queries 24/7 re: individ

vehicles/info through TECS; BLOCC send

out daily e-mail intelligence summary, p

bulletins

Treasury 

Enforcement 

Communication

System

(TECS)

ICE

34 Federal, State

and local agencies

have access to TECS 

databases

TECS is CBP’s operations system and ICE’s 

investigative database for case managemen

It contains data relating to domestic a

international financial crimes, including bulk 

currency smuggling violations, CMIR violati

and money laundering cases. TECS holds data

regarding over $2.5 billion in currency seizu

as well as phone numbers and financial records 

of suspects. Phone numbers are crossreferenced with DEA’s Special Operations 

Division (see belo

 
98

APPENDIX C Law Enforcement Data and Intelligence Center

A P P E N D I X C 

Name Lead 

Agency

Participating 

Agencies How It Works

Tampa Lead 

Development 

Center (LDC),

Tampa, FL

IRS-CI

Selected points

of contact at 

IRS-CI field 

offices and LDC 

personnel.

The bulk currency database located at Tampa 

LDC contains intelligence data from IRS-CI bu

currency field offices (Dallas, Chicago, Nashville, 

Charlotte, New Orleans, St. Louis, Houston, and San

Antonio). The goal is to run intelligence que

against data contained in other IRS databases (w

remitter, counterterrorism, and tax information) 

reactive and proactive case developme

OCDETF Fusion

Center (OFC),

Vienna, V

DEA/

IRS-CI

OFC is an intelligence center that can draw fr

existing data of participating agenies.

collects, analyzes, and mines drug and related

financial investigation information to support 

coordinated multi-jurisdictional investi

focused on drug trafficking and money laundering 

enterprises. (DEA Special Operations Division

as central contact/deconfliction point for field 

offices to gather OFC data)

Special

Operations

Division (SO

Chantilly, V

DEA DEA, FBI, ICE, 

IRS, USMS

SOD uses technology and the investigative a

intelligence resources of participating agenci

target major drug trafficking organizations. SOD 

coordinates and supports multi-jurisdictional

multinational investigat

El Paso 

Intelligence

Center (EPIC),

El Paso, TX

DEA

State, local, and 

Federal agencies.

Coordinates wit

CBP, DEA, ICE, 

IRS-CI, Texas 

Dept. of Public

Safety, COBIJA1, 

HIDTAs, and FL 

Dept. of Law 

Enforcement

Operation Pipeline records seizures made f

private cars and trucks; Operation Convoy record

highway seizures involving commercial vehi

and Operation Jetway records seizures fro

airports, train and bus stations, package shipm

facilities, U.S. Post Offices, and airport hotels and 

motels.

 

ATF, DEA, FBI, 

IRS-CI, United

States Marshal 

Service, FinCEN

EPIC, NDIC, 

United States

Coast Guard

1

 Cobija (the Spanish word for “blanket”) is a coordinated planning effort managed by the Arizona Partnership of the Southwest Border HIDTA to synchronize 

local, tribal, state, and Federal highway interdiction operations.
99

Law Enforcement Data and Intelligence Centers APPENDIX 

A P P E N D I X C

Name Lead 

Agency

Participating 

Agencies How It Works

Post-Seizure Analysi

Team (PSAT),

Austin, TX IRS-C

IRS-CI, DEA, FBI, 

ICE, and Texas 

National Guar

PSAT obtains and analyzes real-tim

information from drug and currenc

seizures in the Gulf Coast corridor a

Texas. PSAT maintains a database an

provides investigative support such as 

dissemination of intelligence, identification 

of criminal associates, linking of susp

to other investigations, and the creation

organizational charts/timelines/graphs

events and relationship

U.S. Dept. of 

Transportation

Federal Motor 

Carrier Safety

Administrati

Drug Interdictio

Assistance Program

(DIAP)

DEA/

IRS-CI

DIAP provides training for State and local l

enforcement involved in highway interdi

by commercial vehicles (trucks, tractor trailer

etc.). Hosts annual “Pipeline Conference

Human Smuggling

and Trafficking 

Center (HSTC),

Washington, D

ICE

ICE, Coast Guard, 

FBI, U.S. Attorney 

for Crimina

Division, NCT

CIA and NSA

HSTC is an interagency law enforcement

intelligence, and foreign policy fusion ce

and information clearinghous.  Foc

is on human smuggling, trafficking, and 

criminal support of terrorist trave.  Goal is

facilitate broad distribution of inform

prepare strategic threat assessments, make

recommendations for action, coordina

deconflict initiatives, and serve as point of 

contact for similar foreign centers/officials.

DEA
100

APPENDIX C Law Enforcement Data and Intelligence Center

A P P E N D I X C 
The Strategic Use of Asset Forfeitur

A significant source of financial support for antimoney laundering task forces, training, and law enforcement innovation is the money seized 

and forfeited from criminal enterprises. The Treasury 

and Justice Departments’ Asset Forfeiture Funds serve 

a crucial role in the national strategy against money 

laundering. 

United States Attorneys Offices use both criminal and 

civil asset forfeiture laws to strip away property derived 

from criminal activity such as narcotics violations, 

money laundering, racketeering and fraud, as well as 

property used to facilitate the commission of certain 

crimes. Whether through civil or criminal proceedings, 

the laws governing asset forfeiture provide due process 

to all persons claiming an ownership interest in the 

property.

The United States Attorneys’ work on judicial asset 

forfeitures resulted in an estimated recovery of 

$390,450,467 in forfeited cash and property during Fiscal 

Year 2004. This represents an increase of 14 percent 

over Fiscal Year 2003. Approximately $2,626,415, or 

less than 1 percent, of the forfeited property was retained 

for official law enforcement use. Approximately 

$44,229,624 of asset forfeiture proceeds were applied to 

restitution in victim-related offenses 

The United States Attorneys Offices filed asset forfeiture 

counts in 3,785 criminal cases, which sought forfeiture as 

a criminal penalty during Fiscal Year 2004, representing 

an increase of 9 percent over the prior year. At the end of 

the fiscal year, there were 5,103 criminal asset forfeiture 

cases pending, an increase of 16 percent when compared 

to Fiscal Year 2003. Additionally, 2,235 civil forfeiture 

actions were filed by the United States Attorneys during 

the fiscal year, an increase of 4 percent when compared 

to the prior year. The United States Attorneys also 

obtained 1,433 civil asset forfeiture judgments in favor 

of the United States during the year, which represents a 

14 percent increase over the prior year. 

The Federal law enforcement agencies that deposit 

forfeited assets into the Department of Justice forfeiture 

fund are the DEA, FBI, the former Immigration and 

Naturalization Service1 , Food and Drug Administration, 

U.S. Marshals Service, and U.S. Postal Service (see 

Tables 18 and 19) 

The Treasury Executive Office for Asset Forfeiture 

(TEOAF) administers the Treasury Forfeiture Fund, 

which is the receipt account for the deposit of nontax forfeitures made by Treasury and Department 

of Homeland Security law enforcement agencies. 

These include ICE, CBP, IRS-CI, U.S. Secret Service 

(USSS), and the former Bureau of Alcohol, Tobacco, 

and Firearms2(see Table 20). The forfeiture amounts 

deposited into the fund have grown steadily over the 

past 5 years. 

TEOAF’s strategy is to use asset forfeiture to dismantle 

large systemic criminal organizations. TEOAF 

supports “high-impact” investigations, defined as cases 

with a forfeiture potential of greater than $100,000. 

The percentage of the annual forfeiture amount that 

comes from these high-impact cases is TEOAF’s key 

performance measure. More than 75 percent of the 

forfeited assets that come into the Treasury forfeiture 

fund each year come from high impact cases, although 

these cases account for only five to seven percent of all 

asset forfeiture cases (see Table 21). 

101

APPENDIX D

A P P E N D I X D

Appendix D: The Strategic Use of Asset Forfeitur

1

 ICE and CBP have absorbed the duties of the Immigration and Naturalization Service

2

 The Homeland Security Act of 2002 split the former Bureau of Alcohol, Tobacco and Firearms (ATF) into two new organizations with separate functions. 

The Act created a new office within the Department of the Treasury, the Alcohol and Tobacco Tax and Trade Bureau, and shifted certain law enforcement 

functions of ATF to the Department of Justice. 
The Strategic Use of Asset Forfeitu

102

APPENDIX D

A P P E N D I X D 

TEOAF is using forfeited assets to fund innovative law 

enforcement programs that are not likely to be considered 

for appropriated funding until the “proof of concept” is 

established. Among such initiatives are investigative 

databases and data mining systems, forensic laboratories 

and other technology-related projects. Once the “proof 

of concept” is successfully established, these projects can 

be included in the agencies’ base funding, which in turn 

frees resources to fund new initiatives seeking support 

from the Treasury Forfeiture Fund. The following are 

among the recent successful initiatives realized with the 

support of the Treasury Forfeiture Fund.

ICE’s Trade Transparency Units: By sharing and 

analyzing import and export data with foreign 

counterparts, ICE is able to identify discrepancies 

that can be indicative of trade-based money 

laundering (See Goal 4).

IRS-CI’s E-Crimes Technology and Support 

Center: Located in Springfield, VA, this lab 

provides 24-hour technical support to Computer 

Investigative Specialists in the field and maintains 

a state-of-the-art technical training facility. The 

Digital Data Input Center transcribes and stores 

records gathered in the investigative process, 

making retrieval and analysis more efficient for 

field agents. 

•

•

USSS Electronic Crimes Special Agent Program 

(ECSAP): This program provides basic and 

advanced computer training to USSS agents. 

ESCAP trains agents in: (1) basic electronic crime 

investigation techniques; (2) network intrusion 

investigations; and (3) computer forensics and 

digital evidence and investigations. 

In addition to funding agency-specific initiatives, 

the Treasury Forfeiture Fund also supports broadbased training programs that address current issues in 

investigative techniques and asset forfeiture; identify 

and promote best practices; and foster cooperation 

among investigative agencies. TEOAF’s training 

strategy mirrors its funding strategy, emphasizing 

innovative ideas and practices that lead to more 

effective prosecutions and forfeitures. Between 2003 

and 2006, TEOAF developed six new training curricula 

and conducted 19 seminars attended by more than 2,200 

agents from across the United States.

•
The Strategic Use of Asset Forfeitur

103

APPENDIX D

A P P E N D I X D

DEPARTMENT OF JUSTICE ASSET SEIZURES AND FORFEITURES BY AGENCY FOR FISCAL YEAR

AGENCY FORFEITURE 

TYPE

SEIZED 

ASSETS SEIZED VALUE FORFEITED ASSETS

FORFEITED 

AMOUNT

Drug

Enforcement

Administrati

Administrative 11,639 $260,669,786.50 10,699 $21

Civil/Judicial 2,001 $122,250,783.24 1,147 $79,957,

Criminal 1,590 $76,602,535.23 1,146 $ 66,

DEA TOTALS 15,230 $459,523,104.97 12,992 $362,678,9

Federal 

Bureau of 

Investigatio

Administrative 1,387 $62,803,379.11 1,104 $55,834,

Civil/Judicial 774 $102,658,679.48 579 $86

Criminal 1,686 $113,793,994.87 1,190 $55,561,

FBI TOTALS 3,847 $279,256,053.46 2,873 $197,881,00

Food and Drug 

Administrati

Civil/Judicial 18 $2,508,10212 4 $775,8

Criminal 8 $ ,556,739.00 2 $1,255,000

FDA TOTALS 26 $4,064,84.12 6 $2,030,

Department 

of Homeland 

Securit

Administrative 0 $0 3,899 $8,098,0

Civil/Judical 4 $1,457,599.84 22 $2,029

Criminal 1 $1 20 $557,747

DHS TOTALS 5 $1,457,600.84 3,941 $10,685,

U.S. Marshals 

Service

Civil/Judicial 22 $33,101,708.76 24 $30,872

Criminal 49 $1,281,103.1 44 $1,67

USMS TOTALS 71 $34,382,812.57 68 $32,551,856

U.S. Postal 

Service

Civil/Judicial 117 $6,261,092.81 77 $3,

Criminal 218 $19,622,549.82 166 $4,92

USPS TOTALS 335 $25,883,642.63 243 $8,581,88

FY 2004 TOTALS 19,514 $804,568,055.59 20,123 $614,410

Table 19
The Strategic Use of Asset Forfeitu

10

APPENDIX D

A P P E N D I X D 

DEPARTMENT OF JUSTICE ASSET SEIZURES AND FORFEITURES BY AGENCY FOR FISCAL YEAR

AGENCY FORFEITURE 

TYPE

SEIZED 

ASSETS SEIZED VALUE FORFEITED ASSETS

FORFEITED 

AMOUNT

Drug

Enforcement

Administrat

Administrative 10,903 $321,358,941.29 10,957 $295,265,2

Civil/Judicial 2,106 $119,286,467.87 1,214 $51,

Criminal 1,380 $107,318,909.36 1,122 $49,196,

DEA TOTALS 14,389 $547,964,318.52 13,293 $396,372,5

Federal

Bureau of

Investigati

Administrative 1,504 $52,050,695.67 1,191 $46,37

Civil/Judicial 824 $266,200,272.30 594 $197,7

Criminal 1,715 $310,745,786.13 1,289 $93,402,

FBI TOTALS 4,043 $628,996,754.10 3,074 $337,5

 Food and Drug 

Administrati

Civil/Judicial 24 $5,799,79.77 4 $905

Criminal 58 $6,150,357.94 41 $4,83

FDA TOTALS 82 $11,950,148.71 45 $5,745,49

Department 

of Homeland 

Securit

Civil/Judicial 20 $1,832,018.10 24 $2,770,5

Criminal 0 $ 6 $92,81

DHS TOTALS 20 $1,832,018.10 30 $2,863,408.

U.S. Marshals 

Servic

Civil/Judicial 24 $10,321,100.47 29 $8,082,

Criminal 33 $1,513,288.99 52 $349,

USMS TOTALS 57 $11,834,389.46 81 $8,431,

U.S. Postal 

Servic

Civil/Judicial 193 $43,158,507.65 70 $6,63

Criminal 187 $10,977,524.37 220 $9,742,5

USPS TOTALS 380 $54,136,032.02 290 $16,376,

FY 2005 TOTALS 18,971 $1,256,713,660.91 16,813 $767,353,

Table 20
The Strategic Use of Asset Forfeitur

105

APPENDIX D

A P P E N D I X D

*

TEOAF High Impact Forfeiture Cases (currency forfeitures >$100,000 as a % of all forfeiture cases 

and of all forfeited assets)

FY00 FY01 FY02 FY03 FY04 FY0

% Of All Forfeiture Cases 5% 7% 5% 6% 6%

% Of All Forfeited Assets 72% 79% 73% 81% 84% 8

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

ATF $2,780,132 $3,208,977 $7,783,347 $4,225,119 

USSS $5,968,707 $14,407,909 $9,762,931 $3,707,194

IRS $51,246,330 $64,013,754 $78,202,183 $132,048,861

ICE/CBP $92,359,804 $152,444,062 $194,785,019 $145,668,128

September 2002 September 2003 September 2004 September 2005

Table 22 TEOAF’s emphasis on “high impact” cases is demonstrated in forfeiture 

statistics, FY2000-200

Table 21 TEOAF deposits by agency at fiscal year end, 2002-20053.

3

 Prior to March 2003, the ICE/CBP seizures were accomplished by the legacy U.S. Customs Service.