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Money-Laundering or Terrorism: What Are We Looking For?
On the surface, the transactions conducted by money launderers and terrorists are very similar. Both are moving money for illicit reasons. Both are taking steps to conceal the movement of money and the purpose for moving it. The similarities and differences - and what financial institutions should do to identify them - were a popular topic at ABA's National Regulatory Conference.
Peter Djinis, Associate Director at FinCEN, discussed FinCEN's analysis of money movement patterns showed by terrorists. The account opening process showed the most signs that could be helpful in identifying terrorism's funds. The lesson learned, he said, is that steps taken by financial institutions to identify potential terrorists and their banking patterns at account opening may be the most important element of an anti-money-laundering/anti-terrorism program. Expect to see these findings reflected in the pending rule-making on "enhanced due diligence" (formerly known as know your customer).
Rick Small, now Citigroup's Global Anti-Money Laundering Director, disagreed. He believes that funding for terrorism simply takes the form of traditional money laundering and that the early signs in account opening are difficult for financial institutions to identify without additional information. To identify terrorists at the account-opening stage, Small suggested that financial institutions need information, including names of suspects, from the government. Institutions need this additional information from the government to distinguish between the money launderers and terrorists.
Djinis advised that there are steps to be taken to beef up review of those attempting to enter the financial system, whether they are money launderers or terrorists. Obviously, the responsibility for doing this will fall primarily on financial institutions.
Pam Johnson, Senior Anti-Money Laundering Coordinator at the Federal Reserve Board, pointed out that, whatever we call it, the process of identifying customers is not simply about what documentation is reviewed and collected. It is more about what the institution does with that information. She advises financial institutions to take steps to validate the identification documents within a reasonable time of account opening - or even at account opening. It is important that the institution understand what these documents actually mean. This validation effort may become more significant than the mere collection of information.
FinCEN's ideas about additional steps to identify customers are likely to be reflected in the enhanced due diligence regulations under the USA PATRIOT Act. These regulations must be in place by October 24, 2002. Expect a proposal very soon, with a very short comment period.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 7, 6/02
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