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Low-risk bank customer accounts can be a conduit for money laundering
Saiyid Zaidi 22 August 2014
Transactions in low income individual account also need to be monitored with the same keen eyes as in other accounts by bank officials. There are several instances about low-risk customers allowing someone to use their bank account for a small commission
 
Money laundering is trading in criminal money. Money launderers seek out areas, which seem low risk due to existence of ineffective anti-money laundering systems. Launderers, prefer to move funds through areas with stable financial systems. For this purpose, they also seek out low income individuals having accounts with banks and use them as mules to transfer their illicit funds. The narrative that follows highlights how a low risk customer with a bank account was used to transfer funds illegally. It also brings into focus how ill trained, grossly negligent bank officials, ignored the obvious red flags that triggered large amounts being transferred through savings account of a factory worker. The identities of the country, the bank and the account holder are not disclosed here.
 
Mrs A was an employee in a garment factory in the Middle East. Like many other factory workers, she also walked to the bank branch every other week to deposit a few hundred of hard-earned dirhams in cash into her savings account. And, like thousands of other bank customers, she would occasionally transfer some money from that account to an account overseas apparently to her home country. This went on for three years, until, the branch manager noticed a considerable number of wire transfers being made from her account. This had all the earmarks of money laundering, which meant the branch manager should quit business (close account) with Mrs A immediately. But he hesitated. First of all, the idea that Mrs A might be laundering money seemed silly for him. Second, he did not want to close her account abruptly, because there were number of customers from the same factory where she worked. If word got around that the bank had abruptly closed her account, that would not have helped the bank's business.
 
The first step was to take a closer look at her account records. A single large deposit, the branch manager said, would not have caused him any concern. After all, Mrs A might have had a big win in the weekly lottery. But a single large deposit is not what he found. What he saw was that, over the past six months, a woman who had in the past made small deposits every other week was now depositing as much as 80,000 dirham in cash, on a random but frequent basis.
 
To the manager this looked like ‘placement’ – getting the money into the system. He was upset that his tellers had not brought the new pattern of deposits to his attention. In addition, he saw that relatively similar amounts were now being sent by wire transfer to accounts in other countries and other banks. This he thought looked like ‘layering' – moving money around to confuse the trail. But it was the next day, before he could follow through with inquiries with managers of the bank’s branches in other countries. Could they tell him, he asked, whether the accounts receiving the wire transfers were still open and active? It turned out that one account had been closed and the equivalent of 350,000 dirhams, most of it remitted in by telegraphic transfer, had been withdrawn. An equal amount of money in a second account, most of it also remitted in by telegraphic transfer, had been used as the down payment for a mortgage on a restaurant property. Another two accounts were still open but funds remitted (from Mrs A's account) had already been turned around and remitted out to other accounts elsewhere. A fifth account in the name of a small business had a balance that fluctuated frequently, though lately the average balance had climbed.
 
To the branch manager it seemed obvious. This was a money laundering operation, functioning on a fairly small scale, but successfully cleaning up dirty money –– and ‘integrating’ it into the legitimate economy. He also guessed that his customer, Mrs A, was not the source of the money but was probably letting her account be used for a small cut of the proceeds.
 
Finally, the branch manager decided to close her bank account. But he stopped. He was not sure what to do, especially since funds have already moved through his branch. The case indicates that there was ‘MONEY LAUNDERING’ going on under the Manager’s nose. Mrs  A was used as a mule against payment of some commission and the bank manager and staff were either inadequately trained or grossly negligent in ignoring the obvious red flags. The moral is that transactions in low income individual account should also be monitored with the same keen eyes as in other accounts and also employees should be well trained and fully equipped to spot such patterns of transactions.
 
(Saiyid (SSA) Zaidi is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.) 
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