1. Forensic and Investigative Accounting
Chapter 7
Money Laundering and Transnational Financial Flows
© 2013 CCH Incorporated. All Rights Reserved.
4025 W. Peterson Ave.
Chicago, IL
CCHGroup.com

2. Forensic and Investigative Accounting
Definition
A definition of money laundering that covers both legal and illegal contexts is to take money that comes from one source, hide that source, and make the funds available in another setting so that the funds can be used without incurring legal restrictions or penalties.
Chapter 7
Forensic and Investigative Accounting

3. Steps in Money Laundering
The traditional money laundering process can be divided into three steps:
Money is deposited in a bank or financial institution.
A set of complex transfers is made to disguise the original source for the money and to hide the audit trail. (This step is called layering the transactions.)
The money is integrated back into the legitimate money supply.
Chapter 7
Forensic and Investigative Accounting

4. Cybercash Creates New Laundering Opportunities
Using the Internet, it will be possible for anyone to transfer large sums of money from one location to another without using a bank and with the transfers being totally anonymous.
Chapter 7
Forensic and Investigative Accounting

5. Cybercash Creates New Laundering Opportunities
Today, cybercash transactions are beginning to take place without the need for third parties and the consequential scrutiny that might otherwise exist.
Furthermore, cybercash transfers can be structured so that they originate in a jurisdiction where such activities are not considered illegal.
Chapter 7
Forensic and Investigative Accounting

6. Possible Users of Money Laundering Practices
Grant recipients
Criminals
Political asylum seekers
Chapter 7
Forensic and Investigative Accounting

7. Correspondent Banking
Correspondent banking takes place when one bank provides services to another bank to move funds, exchange currencies, and access investment services such as money market accounts, overnight investment accounts, CDs, trading accounts, and computer software for making wire transfers and instant updates on account balances.
Chapter 7
Forensic and Investigative Accounting

8. Correspondent Banking
A payable-through account enables the respondent bank’s clients within the country where the bank is registered to write checks that are drawn directly on the respondent bank’s correspondent account in the United States.
Chapter 7
Forensic and Investigative Accounting

9. Tools Banks Use to Identify Money Launderers
Monitoring software
Currency Transaction Reports (CTRs)
Suspicious Activity Reports (SARs)
Chapter 7
Forensic and Investigative Accounting

10. Due Diligence Laws for Banks
Laws and regulations require that a bank perform due diligence in its relationships with other banks and important clients as well as continually monitor account transactions. Within banks, due diligence must co-exist with the client’s need for privacy and the secrecy laws existing in many foreign jurisdictions that prevent access to bank documents.
Chapter 7
Forensic and Investigative Accounting

11. Forensic and Investigative Accounting
Shell Banks
Shell banks are generally high-risk banks that exist without any physical presence in any legal jurisdiction. These banks have a banking license in a specific country, but they are not likely to have a staff and may be operated as part of another business or operated out of an individual’s personal residence.
Chapter 7
Forensic and Investigative Accounting

12. Forensic and Investigative Accounting
Offshore Banks
An offshore banking license prevents the organization from transacting banking activities with any citizens of the licensing jurisdiction or transacting business with the currency of the licensing jurisdiction. These bank operations solely exist within international financial transactions.
Chapter 7
Forensic and Investigative Accounting

13. Cash-Oriented Businesses
Currency exchanges
Online auctions
Casinos
Purchasing departments
Chapter 7
Forensic and Investigative Accounting

14. Forensic and Investigative Accounting
Bitcoins
Bitcoins are electronic encrypted currency and an alternative to national currencies.
The value of the coins are online market
The coins have value in themselves and do not require the deposit of cash into an account.
Chapter 7
Forensic and Investigative Accounting

15. Forensic and Investigative Accounting
Audit Trail
Churning
Laundering cycles
Illegal cash
Deposited into bank
Purchase asset
Sell asset
Documented legal cash
Chapter 7
Forensic and Investigative Accounting

16. Finding Money Laundering Schemes
Web logs
Tracing IP addresses
HTTP common logfile format
Wire transfers
Bank reports
IRS Form 8300
Chapter 7
Forensic and Investigative Accounting

17. Guarding Against Money Laundering
Individual due diligence.
Business associations.
Employment.
Company due diligence in verification procedures.
Corporate ownership and governance.
Bearer shares.
Trust due diligence.
Trust deeds.
Beneficiaries.
Chapter 7
Forensic and Investigative Accounting

18. Accountant’s Role as Gateway Keeper
AICPA Auditing Standards Governing Money Laundering.
SAS No. 54, Illegal Acts by Clients.
SAS No. 82, Consideration of Fraud in a Financial Statement Audit (now replaced by SAS No. 99).
Lack of Reporting Requirement.
Chapter 7
Forensic and Investigative Accounting

19. Forensic and Investigative Accounting
Social Media
Part of any due diligence investigation today
There is an explosion in personal information that is available about individuals on social media websites such as Twitter, Facebook, and LinkedIn
Chapter 7
Forensic and Investigative Accounting

20. Forensic and Investigative Accounting
USA Patriot Act of 2001
International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (MLAA).
Payable-through accounts.
Enhancements and restrictions under MLAA.
Reporting requirements under MLAA.
Chapter 7
Forensic and Investigative Accounting

21. Forensic and Investigative Accounting
U.S. V. Europe
Money laundering in Europe is based more on a risk model analysis that goes beyond AML measures.
Risk based modeling deals with geographical locations, number of cash transactions, extraordinary high audit fees, and bartering of goods.
Chapter 7
Forensic and Investigative Accounting