SAR Filers Identify Suspicious Monetary Instruments Clearing Through International Cash Letters

International cash letter processing through correspondent accounts is a standard banking service provided by some U.S. financial institutions to foreign financial institutions.7 In basic terms, an international cash letter is an inter-bank transmittal letter that accompanies checks or monetary instruments (such as money orders) sent from one bank to another internationally. Some banks that monitor their cash letter processes for suspicious activities have identified bulk movements of monetary instruments, which appear to be indicative of money laundering. Their observations are consistent with several recent law enforcement cases involving money laundering through bulk monetary instrument transactions. FinCEN is monitoring this reported activity to determine if it is indicative of a trend.

Investigations and SARs filed by financial institutions have revealed that monetary instruments, purchased in bulk with illicit proceeds, are sometimes cleared through cash letters. It is important to note that the clearing banks are several steps removed from the actual conversion of the illicit funds to monetary instruments. Their ability to nonetheless identify the indicia of suspicious activity in the course of clearing these instruments suggests there may be a vulnerability at the stage at which the instruments are actually issued (for example, sequentially numbered monetary instruments endorsed by the same person aggregating to a high value). Thus, monitoring of the cash letter process can yield important insights into not only trends in bulk movement of monetary instruments but also potential vulnerabilities at their point of sale.

Fortunately, both regulatory authorities and the financial industry are becoming aware of these issues. The banking regulatory agencies have examination procedures requiring financial institutions to give enhanced scrutiny to cash letter processing, which has resulted in SAR filings. FinCEN?s comprehensive study of IVTS8 provided examples of suspicious activity involving the international transport of monetary instruments. For example, BMPE schemes reveal narcotic proceeds clearing through correspondent accounts via checks, money orders, and other types of monetary instruments. FinCEN has found the SARs filed by financial institutions from their monitoring of cash letters to be valuable in identifying such activity.

To further assist industry, FinCEN is currently conducting a comprehensive study of SARs that relate or refer to monetary instruments clearing through the international cash letter process. The findings of this study will report on any patterns and trends, as well as red flags that may be shared. It is envisioned that the issues raised from this ongoing research will stimulate further productive discussion among the law enforcement, regulatory, and financial communities.

Following are some examples of activities involving bulk monetary instruments and cash letters:

• In a case involving the Kumar hawala, the United States Attorney for the Eastern District of New York recently charged nine defendants with participating in the Kumar Organization?s unlicensed money transmitting business. Kumar transmitted in excess of $32 million out of the United States between January 2001 and May 2003. The government alleged that in addition to illegal money transmissions, Kumar converted currency into monetary instruments, including money orders and checks, and sent these funds via courier service outside the United States. On a single day, May 25, 2002, Customs Inspectors at Newark/Liberty International Airport intercepted Kumar?s courier packages destined for Canada containing approximately $100,000.
• Law enforcement agents in the San Francisco area report that lower volume hawalas, particularly, are sending money orders overseas for negotiation.
• Law enforcement personnel at several major airports on the east coast have discovered large amounts of money orders in even amounts, and sequentially numbered, being sent regularly to a country in the Middle East.

Excerpted from SAR Activity Review Issue 6, page 12